We were discussing the general question about the transfer of business by Saorstát Eireann companies and I was inquiring of the Minister what he proposed to do with the tariff agreements, which would have to be assigned in the event of amalgamations taking place. I want to know whether that matter has engaged his attention.
Insurance Bill, 1935—Recommital (Resumed).
Debate resumed on the following amendment:—
In sub-section (4) (b), line 26, after the word "company" to insert the word "either" and at the end of paragraph (b), line 30, after the word "company" to add the following words and figures:—
"or for a period of three years to enable such company to form a subsidiary company for the purpose of transferring the said other assurance business of such company to such subsidiary company— such subsidiary company to have a nominal capital of not less than £100,000 with minimum paid-up capital of £35,000."—(Deputy Lynch.)
There need be no difficulty on that account at all. The Deputy was dealing with the situation which would arise where the business of one company would be transferred to another. It would be for the acquiring company to make its own reinsurance arrangements. There need be no difficulty in that regard. The reinsurance treaties of the companies ceasing to operate will be terminated. All the treaties are made on the basis that they can be terminated at very short notice. As the risks are transferred, the reinsurance of the new company should come into operation.
It sounds very nice but if the new amalgamated company has a tariff treaty——
Does the Deputy mean a reinsurance treaty?
Yes, If the company has a treaty identical with that of its precedessor in title, no serious difficulty will arise but if I am negotiating a contract of insurance for a large sum on valuable property, I shall ordinarily seek out a company whose reinsurance contract is satisfactory to me. I shall enquire as to the nature of the reinsurance contracts which that company has. We are all aware that there are certain companies which I shall describe as tariff companies, which have peculiarly solvent contracts. There are others which have insurance contracts with Lloyds which on examination prove to be good. There is a third class of insurance companies which have reinsurance contracts with Lloyds or other insurance companies which are anything but good. Suppose that I have insured my property with a company which has a reinsurance treaty with a tariff group and the tariff group does not open a new reinsurance treaty with the amalgamated company, to which the fire and accident business has been transferred, has not my fire and accident contract been fundamentally altered ?
It will be possible in these circumstances to terminate the contract and to take out a new policy.
It will be permissible in the event of any company going into amalgamation to claim back the outstanding balance of any premiums paid in respect of the insurance policy? Where is that in the Bill?
It is implied in the contract between the insurer and the insured.
The implication of the contract is that I am held to be insured for the period of the contract.
It happens quite regularly that an insurance company terminates its contract with the insured and refunds the balance of the premium. It happens frequently in connection with motor car insurance.
If any difficulty is likely to arise in connection with fire insurance my bond has no substance in it.
I do not anticipate any difficulty in that regard.
The Minister is not prepared to give any information about fears that injustice may operate?
This Bill represents what we are prepared to do at the moment, and there are no compulsory provisions in it.
Was any scheme laid before the Minister by any representative of the insurance companies for a comprehensive amalgamation of the existing composite offices both as to life and industrial business on the one hand, and fire and general business on the other? Has any scheme of that kind been laid before him?
No. I have not received any such scheme yet.
No scheme has been discussed with his Department?
What has been discussed with the Department is the question of the amendements that would be necessary in the Bill to enable a new company to be formed to take over the fire and accident business of Saorstát composite offices.
And the Minister's opinion on no other scheme for amalgamation has been invited?
I do not want to say "no" to that straight away. We have considered a number of schemes and proposals put up to us for the last two or three years, but as far as this Bill is concerned, this is as far as we have proceeded. Any undertaking is conditional on the scheme being one that we would approve of, and one that would be fair to the people doing business with the company established.
Amendment, by leave, withdrawn.
Amendments Nos. 35 and 39 go together.
I move amendment No. 35:—
At the end of sub-section (5), page 12, to add a new paragraph as follows:
(f) Such company shall deposit and keep deposited with the Accountant of the Courts of Justice such sum of money as will cover all its liabilities to the policy holders of Saorstát Eireann.
The Minister has taken very drastic and far-reaching powers to control the business of Irish companies, and to secure as far as possible that the policy holders will be protected from any action on the companies' part which will not be to their advantage, but he has taken very little control over foreign companies. I think the Minister should try to establish more control over these foreign companies than he is now providing in the Bill. The mere fact of insisting on the same deposit in the case of a foreign company, as in the case of Irish companies, is of very little assistance in this matter. The deposits, while they form a large proportion of the funds of the native companies, form an altogether infinitesimal fraction of the amount of the liabilities of the big foreign corporations which are covering risks amounting to tens of millions of pounds. It has been found in other countries from experience that it is necessary to insist on some control over the funds of these companies to an extent that will cover a very large proportion of the liabilities of these companies in these countries. The United States, for example, found it necessary to insist on foreign companies doing business there investing their moneys in such a way as to give the Government some control over the activities of these companies. I believe they insist on these companies investing their funds to the full extent of their liability. I believe that situation was brought about as a result of the San Francisco earthquake. A number of companies repudiated their liabilities, and even in cases where the liabilities were met, and where the companies were powerfully strong companies, it was almost impossible to meet all the liabilities.
In the present state of world conditions a situation has arisen which makes it more necessary than ever before to take precautions of this nature, so as to secure the insured persons. The tendency in most countries to retain capital at home is growing. In some South-American countries, in Germany, Czecho-Slovakia and various other countries, it is illegal to export funds. If that process continues to any great extent, even strong foreign companies might find that in the case of a very great calamity here, such as a great fire, the company, even though it was solvent, might not be able to realise its funds or investments in the foreign countries. I think that is an aspect of the case that the Minister ought to take seriously into consideration. It is not likely that there will be a very great calamity of that kind in this country, but one can never be sure. The main purpose of insurance is to provide against the improbable. In the City of Dublin, during the hard frost, it was found that the water mains burst. If a fire broke out in areas where the water mains had burst that fire would do very considerable damage before it could be brought under control. Within a few yards of where I live, some months ago a fire broke out in a big institution and half the house was gutted. When the fire brigade came up they found the water was not strong enough to work the hose. Were it not for the fact that the place was near a river, which enabled the fire brigade to use the fire hose, the whole place would have been destroyed.
The property insured in this country, particularly in the City of Dublin, totals a very great amount indeed. The Minister should try to take powers to see that these companies doing business here give sufficient security or, at least, a higher proportion of security than they are giving at present for the amount of business they do. We have no control over these foreign companies which are doing very big business here. There is not even an Irish representative on their boards. They are not concerned with this country to any great extent, beyond seeing what profit they can make out of it.
If this amendment were inserted in the Bill it would alter the whole basis upon which business is at present carried on in this country. The amendment, I think, is based upon some misconception as to the purpose of deposits by the insurance companies. The primary purpose of deposits is to prevent the establishment of unsubstantial or mushroom insurance companies. It is not to these deposits that the insured person looks for his security. He looks for that to all the assets of the company. In the event of the company being wound up all its assets, wherever situated, would be brought into the common liquidation. Furthermore, so far as the amendment affects the life insurance companies, no life insurance company can keep within the range of court investments the funds sufficient to cover all liabilities to the policy-holders and, at the same time, to provide satisfactory terms to these policy-holders. The companies investments must be sufficiently broad to secure a sufficient interest return.
The Deputy referred to the practice in the United States of America. In that connection I would like to say that we have framed this Bill on the same principle as that on which the Act of 1909 was framed. That is the principle which I described as freedom with publicity. That freedom imposed upon the companies certain moral obligations to conduct their business on proper lines. In America, the United States, Canada and certain countries on the Continent of Europe, the conduct of insurance business was such that rigid statutory requirements as to the basis of valuation and the limitation of investments, amongst other things, had to be imposed. I hope that such requirements will not be necessary in the Saorstát. On the general basis of the principle which underlies this Bill, the same principle which underlies the 1909 Act, insurance business will develop. The moral obligation to which I have referred will operate to ensure that the companies engaged in the business will carry it out on proper lines. I think it would be a fundamental mistake at this Stage to adopt any such amendment as the Deputy proposes.
Mr. Bourke
I merely put down this amendment in order to make clear to the Minister the fact that there is a difference in the position as between native and foreign companies. The Minister has absolute control in every respect over the native companies. He has control over the directors of the companies; he has control over the policy of the companies, and he has control practically almost to a complete extent over their investments, because most of them have investments in Irish concerns. In any case, the Minister has complete control over them. I put down this amendment to suggest to the Minister that he should see that he has control in some shape over those foreign companies or a control similar to the control he has over Irish companies. Probably he cannot have the same control, but I am making the suggestion that he should see that he has some control over them.
The Deputy will agree we are taking very considerable powers of control on the basis on which the Bill is framed, the basis of securing the fullest possible publicity for the affairs of any licensed company; at least such publicity as is necessary to enable persons likely to do business with such company to be fully informed as to its position. There is, however, another objection to this amendment to which I will draw the Deputy's attention. He proposes that each company should deposit and keep deposited with the accountant of the Courts of Justice such sum as will cover all its liabilities to policy-holders in the Saorstát. That amendment would entail setting up a standard valuation basis, and it could only be the bare minimum sufficient for solvency. It has been our experience that the minimum in such cases would become the maximum or, at any rate, the actual, and it is rather undesirable from the point of view of the policy-holders that such a system should be adopted. It is much better to have this publicity arrangement, under which all the assets and liabilities of the company can be made known to persons likely to do business with it. These persons will look to these assets in their relation to the general position of the company, and not to the amount deposited in the High Court as security for their investments.
Amendment No. 35, by leave, withdrawn.
Part of amendment No. 36 is covered by amendment No. 9. Perhaps the Deputy will delete paragraph (f) and move paragraph (g)?
Mr. Lynch
I am quite prepared to do so.
With the permission of the House, paragraph (f) is deleted.
Mr. Lynch
I move:
At the end of sub-section (5) to add "(g) provided always that such company after the date of the granting of such licence may write each year by way of new premiums not more than 90 per cent. of the new premiums which such company wrote in the year immediately preceding such year."
This is a provision limiting the amount of premiums that foreign companies would write each year after the date of the granting of the licence. I am afraid, from the attitude that the Minister has adopted when dealing with amendments yesterday, for instance the amendment to impose a tariff of 2½ per cent. on foreign companies operating here, and his general attitude that once we allow foreign companies to operate at all, we must not do anything to restrict their operations, there is little use in moving the amendment. The danger I see, after this Bill becomes law, is that supposing the amalgamation takes place you have a more limited number of Saorstát companies then in operation, and there is just the danger that some other foreign offices may come along and increase the benefits to policy-holders over a period of years with a view to taking in new business, and even collecting old business from the new amalgamated offices. These will be in their formative years; they will have to watch their tables very carefully, and they could not compete with the foreign companies if they embarked on a plan of that kind for the purpose of squeezing them out. If a scheme of the kind suggested were put into operation, without in any way seriously affecting the staffs of the foreign companies here, you would, it is anticipated, after a period of about 50 years, have all this type of business confined to the Saorstát companies. I am afraid from the Minister's general attitude towards putting any restriction on the foreign companies, there is very little use in arguing the amendment.
The Deputy has anticipated my objection to the amendment. It would be completely purposeless to provide for the licensing of foreign companies to do this class of insurance business, and at the same time adopt these provisions. No company would carry on with this arrangement. It would be completely impossible for a company dealing in life or industrial insurance here to carry on, and I am quite certain no company would. The Deputy raised an interesting mathematical problem—could the business of the foreign companies ever be reduced to zero by his proposal?
Amendment No. 36, by leave, withdrawn.
Amendment No. 37 not moved.
Amendment No. 38 is out of order. The increase of stamp duty imposes a charge. As regards amendment No. 39, it is governed by amendment No. 35.
Amendments Nos. 39 and 40 not moved.
Sub-section 9:
Whenever an application is duly made in accordance with this Act—
(a) by a Saorstát Eireann company which at the date of such application carries on neither life assurance business nor industrial assurance business, but which, on the 31st day of October, 1935, carried on one or more than one class of assurance business other than life assúrance business and industrial assurance business, and did not on the said 31st day of October, 1935, carry on life assurance business or industrial assurance business, or
Mr. Bourke
I move amendment No. 41:—
In sub-section (9) (a), lines 59 to 61, to delete all words from the word "and" to and including the word "business" at the end of the paragraph.
The only point is that under the original Bill that the Minister circulated to the companies, it was possible for a composite company that wanted to drop its life business and continue fire and accident business to do so. In the interval, between the circulation of the white paper and the printing of the green paper, an amendment was made in the section which rendered it impossible for such a composite company to carry on its fire and accident business and drop its life business. I do not know why the Minister made that change, but, in any case, I think he should revert to the conditions as they were in the original Bill, and allow the composite company, if it so desires, to carry on fire and accident, instead of its life business.
I may be labouring under a misapprehension, but if the words "and did not on the said 31st day of October, 1935, carry on life assurance business, or industrial assurance business, or" are not merely a repetition of the sentence in the beginning of paragraph (a), I am very much surprised. Paragraph (a) reads:
Whenever an application is duly made in accordance with this Act—
(a) by a Saorstát Eireann company which at the date of such application carried on neither life assurance business nor industrial assurance business, but which, on the 31st day of October, 1935, carried on one or more than one class of assurance business other than life assurance business and industrial assurance business, and did not on the said 31st day of October, 1935, carry on life assurance business or industrial assurance business...
Surely that is merely a repetition of the words that occur at the beginning of the paragraph?
Deputy Bourke, I think, made the meaning of his amendment clear. The effect of its acceptance would be to enable a Saorstát company to carry on permanently both life and non-life classes of business. That is what the Deputy seeks to achieve.
Life and general?
Yes. That is a matter we discussed on three previous amendments, and I indicated I was not prepared to accept amendments of that character. We have agreed to postpone, until we consider the question on the whole section, the general principle of the division of business. But, subject to the decision of the Dáil upon that question, I do not think that we should have special provisions relating to Saorstát companies and not relating to external companies, because whatever case can be made for the division of business applied with equal force in the case of Saorstát companies as in the case of external companies.
I must ask for an elucidation of this. Certain words qualify the business of an assurance company:
"...which at the date of such application carries on neither life assurance business nor industrial assurance business but which, on the 31st day of October, 1935, carried on one or more than one class of assurance business other than life assurance business and industrial assurance business, and did not on the said 31st day of October, 1935, carry on life assurance business or industrial assurance business, or ..."
How does the Minister come to attach a significance to the words appearing at the end of the paragraph different from the significance that he attaches to the words at the beginning of the paragraph?
The beginning of the paragraph refers to the circumstances at the date of the application, and the end of the paragraph refers to the circumstances on the 31st October. The whole provision is designed to prevent certain changes being effected as between the date on which the Bill was introduced and the date it becomes law. It puts a composite company in no different position if it changes its composite nature as between the date on which the Bill was introduced and the date on which it is enacted. As Deputy Bourke has pointed out, the words were inserted after the draft of the Bill was circulated to the companies in order to repair a defect under which certain changes could be made during the period following the circulation of the Bill and the date on which it became law, changes which, in certain circumstances, might defeat the intentions of the Bill.
Amendment No. 41, by leave, withdrawn.
Amendments Nos. 42 and 43 not moved.
Mr. Bourke
I move amendment No. 44:
To delete sub-section (9) (c).
Before the year 1926, there was a very lucrative type of business to be done in this country in the shape of fire business for local authorities. Very often it was a costly business to get, but when it was got it was very sound, and most companies were very keen on securing it. It was unusual in this respect that the Irish companies had a better opportunity of securing it than the foreign companies. It was really the only high-class business in this country in which the Irish companies had an advantage, and for that reason they were very anxious to get it.
In the year 1926 a new situation arose. Certain people in Dublin got together and conceived the idea of forming a body which would have a monopoly of the business of public bodies in Ireland. There was one difficulty in the way, and that was that, in order to do insurance business here, it was necessary to make a deposit of £20,000. There was no great prospect of that amount of money being forthcoming. The people intersted in forming this new company found it was necessary, if their wishes were to be carried out, that legislation would have to be passed in the Dáil. In order to effect their purpose they went to considerable trouble in the way of lobbying Deputies, in getting control of the various local authorities and of the General Council of Country Councils, and generally in making themselves very active in Government Departments. I happened to be Minister for Local Government at that particular time. I always had the interest of Irish insurance companies very much at heart. Just at that time I was primarily concerned with the interests of public bodies which were very keen on the measure that was then being sponsored by those gentlemen. They pointed out that the company, if formed, would be able to effect savings for the rate payers in the way of reduced premiums, and were able to quote the example of a similar company that had been set up in England.
I decided that it was only right that the Oireachtas should have an opportunity of voting on their proposal. Accordingly, a Bill was introduced. I left it to a free vote of the Dáil to decide whether they would permit this company to carry on without making a deposit of £20,000. Some members of the House dissented from the proposal, but eventually the Bill was passed and this company came into being. It has been in operation for the last ten years. So far as I can gather from the inquiries that I have made, the company has not justified its existence. It has not done any of the things that we were told originally it was going to do. It has not reduced the premiums paid by local authorities. It has not given better security to them because the funds of this company are by no means as great as the combined funds of the Irish companies which were formerly doing the business of local authorities. It is not keeping the same amount of business in the country either because, having very limited funds, it has to reinsure a great deal of its business outside the country. On the other hand, I need hardly say that the effect on the other Irish companies of the loss of this business was considerable. As I have said, this particular class of business was the only high-class business in which the Irish companies of that time had an advantage.
There is another point. This company has not been of any assistance to the local authorities. At the time that the various Irish companies were competing for the business of public bodies, in order to get the paying end of it which was the fire end, they were usually prepared to do another end of the business of public bodies—the fidelity guarantee end—which was by no means a paying end. Anyhow, when this company got the fire end of the business of local authorities, it was an understood thing that it would also do the fidelity guarantee business but the company does not do that. Hence, local authorities find it almost impossible to get cover for that particular risk.
There is another consideration and it is this: that in order to get that business the Irish companies and, in cases where they were interested, foreign companies were often times prepared to extend loans to public authorities at very favourable rates of interest. As Deputies know, an insurance company is in a much better position to extend a loan to a local authority than, say, the banks. They look more for short-term loans because of the fact that they may have to call in their capital at short notice. In the case of insurance companies, their risks do not mature for a number of years and, in most cases, this type of business was found to be very suitable for them. They had good security and a decent rate of interest, and it suited them well to give loans to public authorities often times in order to get the fire business. These Irish companies and other companies were prepared to give loans of this character on favourable terms to public authorities. Now this particular body —the Public Bodies Mutual—is not in a position to give those loans. I may say that the company has failed to achieve the purpose it was established to achieve. Looking over the debate on the Second Reading of that Bill, I find that Professor Magennis was one of the strongest in denouncing it. He used very strong language at that time. He said: "To my mind, it is the worst measure the Government has introduced and it is difficult to believe that they are serious in desiring to push it through——
And were you serious?
Mr. Bourke
——and there is not a single solid argument in the name of business that could be urged in favour of it." I do not think that even Professor Magennis realised at that time that that particular concern would prove the complete failure it has since proved. There is one thing which I am sure he did not anticipate, and it is that those who were responsible for putting through that measure would, at a later stage, invest the funds, which, if they were to be used for any purpose, should have been used to relieve the burden on the ratepayers and the premiums, in an insurance corporation which was going to compete with itself for the business of public bodies. That is the position we have reached to-day with regard to this particular company, and I feel that it is really ridiculous to have that company operating. It was organised to provide cheap insurance for local bodies. At the time, the tariff companies were denounced, because their rates were altogether too high, but I understand that this company is demanding the same premiums to-day. Of course, while the competition was there, they went a little lower than the tariff rates to get the business—I believe 3/4d. lower, to be exact—but when there was no competition, their rates were as high as the tariff companies' rates and have not been reduced since. I think it is a ridiculous situation when one finds this company, set up to cut out ordinary insurance companies, investing its money in very speculative business which is being established for the complete destruction of itself. I think the Minister should not stand over its continuance any longer.
I have this only to say in reply to what the Deputy has said, that the Dáil, in 1926, passed this Local Authorities (Mutual Assurance) Act, and if, in 1936, it is considered desirable to repeal that Act, that repeal should be effected by a Bill for that purpose, and not by an amendment of this Bill which is designed to make it impossible for the Minister for Industry and Commerce to give a licence to a company which is carrying on assurance business under the terms of that Act. Whether the arguments used by Professor Magennis in 1926 were sound or not, the Deputy apparently did not think them sound then, although he quotes them now.
Mr. Bourke
I have had ten years' experience since.
And on the basis of that ten years' experience, the Deputy is entitled to make his case. I do not want to use against the Deputy the argument that he, as the Minister, was responsible for that Act. I am quite certain that there are a number of Acts passed about that time the repeal of which now would be quite justified, and possibly there are a number of Bills being introduced now the repeal of which will be justified in ten years' time; but what I do say is that we should not by an amendment of this Bill nullify the provisions of that Act. If it is seriously proposed that that Act should be repealed, I think we should have a Bill for that purpose brought before the Dáil so that it could be discussed by itself, without relation to the other many and contentious points that arise under this Bill. The only purpose of this particular paragraph in the sub-section is to provide that, if a company complying with the provisions of the Local Authorities (Mutual Assurance) Act, 1926, applies for a licence to do the class of business it is entitled to do, the Minister shall grant the licence. We are merely providing here that it will get the licence which is now required to carry on that business, but the main concession given to that particular company—the Irish Public Bodies Mutual Assurance Company— by the Act of 1926, was an exemption from the requirement of a deposit in consideration of its confining its business to local authorities. If there is a case now for requiring that company to make a deposit we can have that case discussed separately on a Bill to amend or repeal the Local Authorities (Mutual Assurance) Act, 1926. I think it would be completely unfair and wrong merely to nullify that Act by making it impossible for the company formed under it to get a licence under this Bill.
Is there nowhere else in this Bill a provision about any company making a deposit?
There are certain companies exempted from the deposit.
Is there anything in this Bill which imposes an obligation without a deposit on anybody?
There is.
Of course, there is. The Minister's argument is fantastic, that he does not propose to interfere with the body formed under the Local Authorities (Mutual Assurance) Act, 1926, as if he was not interfering with a whole variety of matters affecting insurance companies, and, in fact, amending all sorts of legislation affecting insurance companies.
But we are merely carrying on in this Bill the existing law in relation to the Irish Public Bodies Mutual Assurance Company.
To put it directly, if you had made up your minds that the particular body referred to was not a good one, there would be no scruple about wiping it out.
Deputy Bourke introduced the Bill in 1926 when he was Minister for Local Government, and it was, as he said himself, local government considerations that occupied his mind. There may be local government considerations which justify the continuation of the Bill now and, therefore, if its repeal is suggested, it should be considered as a local government measure, and not as a measure bearing on insurance. So far as this Bill is concerned, we are merely continuing the provision which was considered necessary in the interest of local authorities in 1926 when that Act was passed.
And you should go on to say "And consider it a sound and good reason."
From the point of view of the local authorities, I have not considered the matter at all.
Amendment, by leave, withdrawn.
Question proposed: "That Section 12 stand part of the Bill."
This section, I think, may be described as the fundamental section in this entire Bill. It embodies really the whole principle of the Bill and purports to contain practically the entire machinery which will enable the Bill to operate on that principle. The section itself has 11 sub-sections, and something like 20 paragraphs in addition, and it is, in my experience, at all events, one of the longest sections in any Bill I have come across. The provisions are complex and complicated, and, in some respects, almost impossible to construe. There is a good deal of repetition in the section and a good deal of ambiguity. I have already dealt with the special matters affecting Saorstát Eireann companies on sub-section 4 paragraph (b), and I propose at the moment to deal only with the real fundamental principle which underlies this section. I stated here previously to-day that I approach the consideration of the problem which the Minister has to solve with rather an open mind, and with fairly full knowledge of the difficulties of the problem and the complexities of the situation that he has to deal with. I would be prepared to give every possible consideration to any suggestion that emerged from the Government to deal with that problem. The Government, through their Minister, have selected one particular method, above all other methods, for dealing with the situation that confronts us here, and that method is embodied in this section. The guiding principle of that method is the separation of the life and industrial business from, what I call, general insurance business. It may be that the separation of the insurance business they did in the composite companies, in this country, is a desirable thing. It may be the best possible method of solving the peculiar situation that exists in this country. I do not know. I want to be convinced of that. I want solid, substantial, cogent reasons to justify the very revolutionary principle embodied in this section, and for which there exists, so far as I can ascertain, no precedent in any part of the world where insurance business is carried on.
Everybody knows that Canada is one of the countries where the control of insurance business by the Legislature is brought to its highest pitch. The principle embodied in this Bill is not to be found in the Statute Book of the Federal Parliament, or in any of the provincial Legislatures. Can the Minister give any precedent for this principle embodied in Section 12? If he cannot give any precedent, can he give any reason to substantiate this very revolutionary proposal which will interfere with the normal method by which the insurance business is ruled in British companies, foreign companies and Saorstát companies. If the Minister can produce cogent reasons to justify the introduction of this proposal I, for one, am prepared to be convinced. I approach this matter on no political grounds, with no political motive in view, and with no desire to give advantage to any particular company in this country. But I think the proposals here will undoubtedly hit the Irish companies far harder than they will hit the British or the foreign companies. I think there can be no gainsaying that proposition. But I want to get, irrespective of Saorstát companies or the British companies and apart from whichever of those companies will be most effected, some cogent reason to justify a principle which, in the first place, is an interference with the lawful carrying on of business by people who have carried on their business here for many years past.
The mere interference with business by legislation in this country, or any interference at all by State action with business, requires strong ground and strong reason to justify it. The Minister has merely stated, in reply to questions put from this side of the House, on the Second Reading Stage, and on subsequent stages, that he is convinced that this is the best method of dealing with the situation that exists in this country. We may have a problem in this country that exists in no other country in the world. I do not know; I do not think so. But if we have, what is the necessity, and what is the justification for this proposal? We have not heard it yet. I heard nothing coming from the Minister except his own personal view and conviction that this is the best method of dealing with the situation. Surely he ought to produce convicing arguments and he ought to tell us the source from which this proposal emanated. Does it come from his own advisers or from outside sources, perhaps interested sources? I make no allegation against anyone but I want to know where this proposal emanated from and what the justification is.
Everyone knows the difficulties of the Minister, and I appreciate his difficulties, in connection with certain matters in this country. I do not think this proposal will in any way minimise these difficulties. Some of the other proposals may enable these difficulties to be met, and, perhaps, surmounted; but I cannot see any justification for interfering on the lines set forth in Section 12 of the Bill, either in the case of foreign or British or Irish companies. The Minister says that the effect will be to throw more business in the way of the Irish companies. I cannot follow that argument. I cannot see how any benefit will accrue to any of them from this proposal. I can see nothing but distrust emerge if this proposal is put into operation. I see nothing but injury to the business of existing companies in this country, some of whom are endeavouring to carry on their business on strict lines and are in a fair degree of solvency up to the present. There are many companies in this country to which that description may apply and I think it is merely interfering with the business they have built up in composite offices, as they are called, and interference along lines for which there is no justification and for which there is no precedent.
This is State interference in excelsis, and can cause nothing but dislocation to business, loss of profit to shareholders and the throwing away of good-will in business built up in a considerable number of years, and which will lead to the disemployment and unemployment of large numbers of their staffs. I await with interest the Minister's justification of Section 12 of this Bill.
We can all sympathise with the Minister's idea in reference to this section. I take it he thinks that the policy holders should be protected. Everybody, on all sides of the House, would rather agree with that principle. But when we come to arguing that in practice we meet with great divergence of views. There is an aspect in this matter of the partition of the insurance companies, which I think is one of the main provisions of the Bill, that has not been raised before. I would suggest to the Minister that while his intentions are excellent he is not proceeding on sound lines to carry them out. If the House will bear with me for a few minutes I would ask them to look at what has brought this about. We are all conversant with the difficulties of Irish manufacturers in this country. They have to produce goods to compete with more favoured methods of manufacture, whether in costs or otherwise, from other sources. Now the insurance companies operating in this country are not very different from manufacturers in this respect. They have to take business at rates that are largely fixed by world conditions and operate these with Irish costs. That is the fundamental fact that has produced the state of affairs that we are considering here to-day. While I suppose there are isolated cases of mismanagement, or cases where the management of the business has not been all it should be, I take it that, in the main, the results brought about to-day have been achieved by the companies doing their best under the existing circumstances.
What is the remedy that the Minister suggests? He has discovered, as is well known to experts in the insurance business, that certain companies were not all that they ought to be from the financial point of view. How does he proceed to alter that? His main idea is partition. There is one matter about this partition that I think there can be no controversy about, namely, that it will raise the cost of operating insurance companies in this country.
How will it raise the cost?
Because it will decrease their turnover without their being able to make a corresponding percentage reduction in their expenses. I think there can be absolutely no question about that. The Minister seems at one time to be anxious that the insurance companies should effect savings by economies with redundant staff, and then again to-day he says that he would welcome the formation of small subsidiary companies to take over the general business of certain insurance companies.
I do not think I said that.
I am sorry, but I understood the Minister to say that. Anyway, it is contemplated that insurance companies will be formed to take over risks that cannot be placed—that will be, so to speak, floating about the market when these amalgamations take place. The Minister will correct me if I misinterpreted him when I understood him to say that the more of these companies that were formed the better, that, the keener the competition, the better would be the position for the Irish person who had insurance business to place. I do not think that that at all follows, because if you have an increased number of companies operating here with a reduced turnover, it is quite possible that they may find themselves unable to carry on with the existing rates and that, in the last resort, the cure might be almost worse than the disease.
Another point I stress is that the Minister apparently is prepared to sacrifice the good companies or the well-managed companies in order to save the position of the bad ones. I think that position could be compared with, say, the Minister for Justice, if his attention was called to an increase of cases of robbery with violence in the city, making a rule that the citizens should only go out in twos and threes. I think the Minister is proceeding to penalise the companies that ought to be regarded by him in the best light. The companies that have managed their business well are, apparently, going to be put to extra expense and, presumably, have their turnover reduced.
Another aspect of this that the Minister has not dwelt upon was referred to by Deputy Bourke when he said that if the Minister did not feel he had sufficient powers to deal with insurance companies, whose funds were not in the state that they ought to be, he ought to take those powers. That is the line upon which the Minister ought to proceed. If there is any danger of the policy-holders' position being jeopardised, the Minister ought to have recourse to Government action and act quite sternly with these people, and, I think, they will get very little sympathy from the general public if they have got themselves into a position in which the Minister had to interfere.
I should like to draw the Minister's attention to this fact, that where companies are amalgamated under this section, it will not mean that the two companies which are amalgamated will then be perfectly solvent. It might result in the position of a perfectly sound company being somewhat jeopardised by the business brought in. I should like to urge upon the Minister that far better results could be achieved by interfering with companies which are not in a perfectly sound position. He could then put them under observation or on some sort of probation, and make them get themselves on to something approaching a sound position. Because I apprehend that we may be approaching a stage in which the Minister, having amalgamated a whole lot of insurance companies, may either find that an increasing number of companies deserve drastic Government action, or that an increase in the insurance premiums charged in this country may be inevitable. That is an aspect that possibly he has not sufficiently considered. While I would regard that as a desirable thing if the policy-holder's position was jeopardised, still some people might think that the cure was almost worse than the disease.
I should like, before dealing with the questions addressed to me by Deputy Costello, to say that this proposal to separate the classes of insurance business, and to confine companies to doing one class or another, is not the central provision in the Bill. If that proposal were extracted from the Bill entirely, it would still be a consistent measure, and one, in my opinion, well worth passing. Neither is that proposal introduced here, because of any doubts that may have arisen as to the solvency of insurance companies doing business here; it is not introduced as a solution of any problems associated with the solvency of those companies. It is introduced as a desirable provision, which is, in our opinion, well worth having embodied in the law relating to insurance, irrespective of the present condition of insurance companies operating here, and one which might effectively be utilised in the circumstances of almost any country. It is not a revolutionary provision. It is, in fact, embodied in the law of a number of countries at the present time. The idea which gave rise to it is not in any sense a new one. The idea that has always been in the minds of the Government legislating in respect of insurance matters for a long period of time past is that policy-holders in life and industrial branches should be afforded the full security of the separate funds created by the assets which their premiums have brought into being, and that there should be no possibility of the life and industrial funds being used to make good the losses or cover the expenses arising on general business.
There is a fundamental difference between life and industrial assurance and general assurance. Life and industrial assurance contracts are of a long-term character. The persons making those contracts with the companies make payments now in consideration of benefits which they hope to receive or which their relatives may hope to receive a considerable period of time ahead, and those contracts are to be contrasted with general insurance contracts which cover a short period of risk only. The idea of protecting the life and industrial policy-holders in a composite company against the funds which are their security being used to cover losses or meet expenses arising on general business has always been in the minds of persons framing legislation to deal with insurance. In fact, many provisions in the existing law relating to insurance were framed for that purpose. There are two ideas as to how that problem can be approached, and how life and industrial policy-holders can be protected. The first is by securing an effective division of the assets within the company doing both classes of business. It was considered by the framers of the 1909 Act that Section 3 of that measure secured that the funds of life policy-holders could not be used for any other purpose than the life policy-holders' interests. That particular section did not work out as was contemplated, and it is certainly not the case now that that section operates in that manner.
There are still people who think that it is possible to devise some system of ensuring that completely separate funds can be maintained, but, in my opinion, and in the opinion of a number of people who have given their expert consideration to this matter, it is not possible. In the course of my introductory speech on the Second Reading I referred to the Report of the British Departmental Committee, which was published in 1927—the Committee known as the Clausen Committee. They put forward, in a draft Bill which they prepared, a set of proposals for securing this effective division of assets, but they did not claim that they had provided a complete solution of the difficulties which they saw. I quoted from their report as follows:—
"The Committee cannot hope that on such an intricate and difficult subject matter their work would prove to be flawless."
It is our opinion, and the opinion of many people who have given consideration to this matter, that there is no effective way of securing that life policy-holders' funds will not be used for general branch purposes otherwise than by a separation of classes of insurance as is proposed in the Bill.
The Minister is using two words as if they meant the same thing—"funds" and "assets"?
I am using them in the same sense.
Did the Clausen Committee do so?
Not entirely, I agree, but I am using the two phrases in a colloquial sense and not in a legal sense. I am pointing to the fact that there are created, out of the premiums paid by life policy-holders, certain assets which are the security of those policy-holders, and from which they can hope to receive the benefits which they have bought. It is our intention, and in fact it has always been the purpose of insurance legislation, to provide that those funds cannot be used to make good the losses arising upon other classes of business. It must be remembered that under the present state of the law the basis of valuation is fixed by the directors of the company, and the State has no power to reject the valuation, although the basis of it may be grossly inadequate. It is possible for the directors of the company to fix the surplus they want to bring out and to adjust the valuation basis so that it will, in fact, bring out that surplus. Having brought out the surplus they can use it to make good the losses on general business, or to pay dividends, but on the winding up —if there should be a winding up—of the life funds, thus depleted, the losses would be shown.
I am satisfied that the only way in which we can effectively prevent life funds being used for general branch purposes is to effect the separation of those businesses in the manner which the Bill proposes. It is true that it may be argued that the operation of both classes of business by one company may effect a slight reduction in overhead expenses. Such a reduction in overhead expenses is a good thing, but it is not, I think, an argument for the maintenance of a system which enables or might enable life funds to be used for purposes quite foreign to those for which they were set up. It is I think, also incorrect to say that this part of the provisions of the Bill will hit Saorstát companies harder than other companies doing business here. There are certain Saorstát offices doing composite business. There are a number of foreign offices doing composite business, and the effect of this provision upon one class will be similar to the effect on another class. In any event, we think it is a provision which should be adopted, and we should not fail to adopt it because it may involve certain difficulties at the present time. These difficulties will pass, and when they pass the improved position of the persons doing life insurance business with both Saorstát companies operating here and foreign companies operating here will be well worth the trouble involved.
I do not know if it is necessary to deal with the matter further at this stage. I have given the general considerations which operated in the minds of the Government and which induced them to put in these proposals in the Bill. It is true that we considered carefully, not whether the proposals were good proposals in themselves, but whether the benefits which their enactment would involve were sufficient to outweigh the difficulties and problems which they would create for the companies concerned. We had to consider that. I think there was no question in the minds of any member of the Executive Council, or of anybody who came to the consideration of this problem, that the provisions in themselves were desirable. If there were no such thing as insurance business here and we were legislating for something which was going to arise in the future, I do not think anybody would question the desirability of having this separation of classes of business. The only argument that can be advanced against it is the fact that certain companies are now carrying on composite businesses and that they are going to be placed in a difficulty by the change in the law affecting them. That is a problem, but, on balance, we decided that the advantages well outweighed the disadvantages, and that is particularly so when the number of Saorstát companies operating here is small and when their operations are not extensive. Most of the composite companies operating here at present are foreign companies, and for many of them the problems created will be much greater, in so far as they are operating in other territories than this and, if they continue to operate here, they will have to make special arrangements governing their business in this country which would not be applicable to the circumstances of their business elsewhere. It is not improbable that a number of these foreign offices will not continue to do business here in consequence of this provision, but I do not think we need be unduly concerned in relation to them. In so far as they are concerned, they must do business in this State, if they wish to do it, in conformity with the laws that this Dáil enacts. Our primary concern, undoubtedly, must be our own companies, and so far as they are affected our concern, undoubtedly, must be to ensure that the reorganisation, which is going to be inevitable in any event, is effected with the least possible inconvenience.
Before the Minister finishes, would he be good enough to say what are the several countries, to which he has so vaguely referred, in which a law of this kind is enacted? Could he give us particulars of these countries?
I mentioned the United States of America and Germany.
Does the Minister mean some of the separate States?
I mean the United States.
Does the Minister mean all the States of the United States?
Possibly, there are some of the States which have separate enactments in that regard
Can the Minister give me one State where a law of this kind is enacted?
Well, I will mention Germany, which is a unified State.
What is the law there?
The law prohibits the carrying on of non-life business by companies doing life business.
What law is that?
I could not tell the Deputy exactly what law it is.
What date is it?
I do not know.
I take it them that the Minister did not consult the text of this law, or a translation of it, before putting in this "very desirable" principle into the Bill, and that he did not consult the text of the law of the United States of America to which he has referred before doing this. Am I correct in saying that the Minister is very vague about the several countries he mentioned?
The Deputy is incorrect.
Well, then, is the Minister very precise about the law to which he referred?
It is not necessary to study the text of the law in the original language.
I asked the Minister whether he had consulted either the text to the law or a translation of it. If he has the text of the law there, or a translation of it, even a précis of it, I think it ought to be available in that bundle in front of him.
Why?
If the Minister has it there it should be before the House.
If the Minister can not produce it, I shall have comments to make afterwards, but if he has it there or if he can make it available, I, personally, would be glad to see it. I do not know whether or not the law of the United States of America is a very vast body of jurisprudence, but can the Minister give us any possible reference or précis, or any indication as to where we will find it? If he cannot produce it in regard to America, can he produce it in regard to Germany, either in English or German or Irish?
If we cannot get arguments from our own Minister, we might be able to get them from some German or American.
Can the Deputy succeed in answering the arguments already made?
At any rate, the Minister has announced one good principle—that the policy-holders in life and industrial assurance business should be afforded the full security of the separate funds of these businesses, and that there should be no possibility of life and ordinary industrial funds being used to cover loss on other parts —an excellent principle, and one that has been acted on in many countries, and the Minister can fortify himself by reference to a number of countries if he founds on that principle and no other. But then he went on to speak about assets. I would point out to the Minister that in the later report of 1934 of the Committee of Industrial Assurance, this phrase occurs:
"In connection, moreover, with this subject, the point arises that, while the law requires separate funds to be maintained for ordinary and industrial life business, respectively, and for certain other classes of business, it does not require the assets to be separated."
Then, in the last report that I have of the Industrial Assurance Commissioner, which is for the 31st December, 1934, there is a summary on page 66. There is a balance sheet showing various figures, and we have the figures for funds and liabilities advanced here in one column, and when I come to assets I find a separate figure amounting to £64,000,000. There is clearly a distinction made there.
Oh, quite.
Well, the Minister, unfortunately, did not advert to that distinction in time. The point that the Minister has to substantiate in regard to this section, if he stands by the section at all, is not the first principle to which I have referred— on that there would be general agreement—that there should be no possibility of funds in the one type of business, life or industrial, being used for other classes of business. The Minister, however, must go a step further and, either from his own imagination or from his own reason, give us arguments, or else get them from some other countries, forcing us to accept the proposal of the partitioning of businesses as being good for either those people who have policies in life or industrial businesses or policy-holders in the other types of business. That is the pivotal point of Section 12. Deputy Costello has referred to the number of sub-sections and paragraphs, but the net point is very clear. The Minister has decided that it is going to make for better business in some way to separate life and industrial business on the one hand and every other class of business on the other. Why is that being done?
I want to hear an argument for that. I think there was argument by way of reference and that the Minister said that people who have thought of it for themselves have felt that a division of the assets—I do not know whether he meant a real division of the funds, or whether that is the division in other countries—cannot be achieved except by a division of business in a way in which a particular company will not be allowed to engage. Let us take two classes of business (a) ordinary life and industrial insurance, and (b) everything else. The Minister says that other people think that that is the proper solution of the problem. I want to know if we cannot get an answer in so many words as to what other countries have done this.
The reason is because it has not been found possible to secure by legislation separation of the funds.
I suggest that the Minister takes the common ground that there is almost world-wide agreement that the backing of industrial and life business should be kept separate from the other things. The Minister told us that it has not been found possible to achieve that.
I put it this way, that it has not been found possible to prevent life funds being used by various devices to cover losses on general business.
If there is general agreement that it is a desirable thing to keep the funds separate, and if the Minister feels that it is not possible to achieve that object, the Minister ought to tell of the examples of countries forced by logical experience of the first principle to accept the scheme in this Bill. I suggest that the scheme in this Bill is to be found rarely. I have not been able to discover it and I have not the resources that the Department has. The Minister ought to tell us precisely where this thing is done and why, and the result of the separate companies which had to be formed out of the scattered remnants. Then we would have a picture on which to make a comparison. If the Minister reads his speech he will find that there is nothing much on the important issues in the way of argument to counter. The Minister has not given any scheme. He said that the generality of people believed this is the way to do this. I suggest that common experience with regard to insurance all over the world does not back the Minister in his suggestion. The Minister told us that Section 12 was not the kernel of this Bill. I am surprised to hear that.
I did not put it that way. There is a lot more than the division proposals in Section 12.
There is a heap of rubbish in it. Let me put it that way politely. The whole of one part deals with industrial insurance. Surely a big change has taken place, a change that was heralded with a mighty blowing of trumpets. Luckily this did not appear in advance of that.
Progress reported.
The Committee to sit again.