I move that the Bill be now read a Second Time.
The principal purpose of this Bill is to provide relief for the policyholders of the Equitable Insurance Company Ltd. As Deputies are aware, I presented a petition to the High Court in May, 1963, for the winding-up of this company on the ground that it was insolvent; shortly afterwards the necessary winding-up order was made by the court. Although the preparation of the legislation was prompted by the failure of this one company, Deputies will observe that the arrangements envisaged by the Bill are of a general and continuing nature, so that it will also provide suitable machinery for the relief of policyholders in the case of any future insurance insolvency. I need hardly say that there are no indications at present that any other insurance company will go bankrupt.
The liquidator of the Equitable Insurance Company is unable to give any reliable indication of the sums of money required to meet claims under the various classes of policies, mainly because the legal position in relation to certain liabilities and assets of the company is not clear. On a very rough basis, however, he feels that the net liabilities may amount to some hundreds of thousands of pounds. The Motor Insurers Bureau, which is representative of all companies doing motor business here, will, in accordance with the terms of a long-standing agreement with the Minister for Local Government, meet certain liabilities under motor policies, but this will still leave a substantial amount of claims unsatisfied.
It had been hoped that the other insurers would take over some, at least, of the Equitable's liabilities, and I had discussions with the Irish and British companies with this end in view before I presented the petition for winding-up. The Irish companies were prepared to contribute one-third of the amount needed to pay all creditors in full, provided the balance was contributed by the British companies and/or the Government. The British companies refused, however, to make any contribution whatever.
I was extremely disappointed that this attitude was adopted by the British companies who enjoy full facilities, on the same basis as our own native concerns, to conduct their insurance business here. In fact, they are to a certain extent shielded from excessive competition by virtue of the provisions of the Insurance Act, 1936. They take the lion's share of the non-life business arising here, the approximate division in recent years being about 80 per cent for the British companies, as compared with 20 per cent for the Irish companies. Despite all this the British companies made it quite clear to me that they would not, in any circumstances, voluntarily contribute one penny towards meeting the claims on the Equitable. The explanation they gave me was that they are opposed in principle to any arrangements for bailing-out any company which gets into difficulty, as this might lead in the future to the adoption of reckless practices by other insurance companies and intermediaries.
It is evident to me from correspondence received in my Department and from appeals made by Deputies in this House that unless some special steps are taken the failure of the Equitable will give rise to serious hardships for its policyholders, particularly in the case of persons who were insured with the company under employers' liability policies. I am satisfied also that the failure of an insurance company to meet its liabilities differs in many ways from the failure of an ordinary business concern. As is well known, insurance companies act in concert in many matters, including the rating of risks and the determination of premiums. Most insurance companies work on much the same principles, and exchange information one with the other. There is also the point that the insurance market here in Ireland is, to a large extent, reserved for the companies operating here. Furthermore, the law has, for many years, recognised that the insuring public are deserving of special consideration and protection, within the limits of a free enterprise system.
For these reasons, I have come to the conclusion that if the insurance industry itself will not voluntarily come to an arrangement under which the policyholders of the Equitable can be assisted, then it will be necessary to impose such an arrangement on them by legislation. Having given the matter a good deal of thought, it also seems to me appropriate that any machinery provided by law should not relate specifically to the Equitable but should be available to deal with any other insurance insolvency situation which may arise, however remote the possibility may be.
I have had further discussions with the insurance companies in regard to the introduction of legislation on these lines. Both the Irish and British companies were opposed to this course. For the reasons I have already given, however, I feel that it is right that, having failed to procure a voluntary scheme, I should introduce this Bill providing for a statutory scheme. I am satisfied that there should be no difficulty in so operating the proposed scheme, that in any given year the financial burden by way of contributions payable by individual companies will be quite small, and I believe that the arrangement envisaged by the Bill now before the House will not cause any serious financial problem for even the smallest company.
The insurance companies expressed the view that it would be unfair and illogical to require them to meet claims under workmen's compensation in view of the decision in principle made by the Government some time ago to expand the social insurance scheme by providing for payments to persons injured in the course of their employment. Although this decision has not yet been crystallised, I feel that there is some validity in the point put by the insurance companies, and the Bill, accordingly, provides for a State contribution which will be roughly equivalent to the workmen's compensation liabilities of the Equitable.
I have given this matter the most serious consideration and have listened carefully to representations from many sources. I am quite satisfied that the interests of policyholders must be adequately protected and that there is no compelling reason why the statutory scheme to relieve them should not be introduced. The main features of the scheme as envisaged by the Bill are as follows:
(a) All non-life licensed insurance companies will contribute to the fund in accordance with their premium income. A non-repayable contribution of £30,000 will be made to the fund by the State with the object of covering the Equitable's workmen's compensation liabilities.
(b) the fund will be available to meet claims under policies issued by any insolvent insurance company which is being wound up by the High Court; the eligible classes of insurance will be those for which a licence is needed under the Insurance Acts, other than life; creditors other than those claiming under eligible policies will not have access to the fund.
(c) As the annual contribution envisaged will not be sufficient to discharge the liabilities of the Equitable within a short space of time, the Minister for Finance will make loans to the fund to enable it to cover all outstanding claims without delay; these loans will be repaid to the Minister for Finance in due course.
The failure of the Equitable Insurance Company prompted questions about the degree of protection afforded by the existing law for policyholders in this country. I think we will answer those questions effectively by providing suitable statutory arrangements for meeting claims on insolvent companies. In order to improve the law further, however, I think it is desirable to do something about the present statutory requirements in relation to the deposits made by insurance companies.
The existing provisions in this respect require a deposit of £15,000 from each company doing motor business and a deposit of £20,000 from each company doing any one or more of the other controlled classes of business, except life and industrial business, where the deposit is £20,000 in respect of each. These figures were fixed in 1936 and are obviously too low by present day standards. The Bill provides, therefore, that a deposit of £100,000 shall be required from each insurance company, no matter how many classes of business it carries on. I gave some consideration also to the share capital requirements set out in the Act of 1936, but I am satisfied that it would not be feasible to do very much on this score, for the present.
In any event, it must be conceded that statutory share capital requirements do not provide any conclusive protection for policyholders since share capital can be lost in the normal course of business. The making of a deposit is in an entirely different category, since this requires the placing of cash or its equivalent in the High Court which retains physical possession of it for the sole benefit of claimants on the company.
Under the Act of 1936 certain licensing rights were given to existing Irish and British insurance companies, and there is a residue of these rights which has not yet been taken up. Bearing in mind the failure of the Equitable Insurance Company, I am satisfied that some tidying-up is called for in this respect. The Bill proposes, therefore, to provide that no new licences may be issued to any company, Irish or foreign, except in the case of a newly established Irish-controlled company satisfying the share capital and other requirements of the 1936 Act. The opportunity is also being availed of to make some changes in the Insurance (Amendment) Act, 1938 in relation to the connection between the Minister for Finance and the Irish Life Assurance Company Ltd.
I am confident that the enactment of these provisions will improve the existing law relating to the insurance industry, and will answer a number of criticisms which have been voiced in this House from time to time. I have no hesitation in commending it to the House.