Insurance Bill, 1971: Second Stage (Resumed).

Question again proposed: "That the Bill be now read a Second Time."

Mr. T.J. Fitzpatrick

(Cavan): It is not my intention to take up much of the time of the House on this measure. I rose shortly before the House adjourned last night to make one net point which occurred to me during the debate. This Bill proposes to increase the liability of the State in respect of indemnity granted to exporters to cover risks of various types to which exporters in this country are exposed in sending their goods to foreign countries for sale and in so far as the Bill does that this party has expressed its complete approval of it.

When this procedure was introduced I think the State accepted responsibility up to the limit of £2 million. That was increased to £10 million by the Insurance Act of 1969 and it is now proposed to increase that to £30 million because, I suppose, the volume of our exports has increased, the value of our exports has certainly increased and the risks have increased. We are dealing with strange customers; I do not say that in any offensive way but we are dealing with new customers of whom we have not had experience before and losses are more likely.

If I understand the measure correctly it means that the national Exchequer accepts responsibility up to a limit of £30 million. In his opening speech recommending the Bill the Minister for Industry and Commerce told us that it is extremely unlikely that we would ever be called upon to foot such a bill unless everything went wrong and went wrong at the same time. The Minister does not propose to operate this insurance scheme himself directly. He proposes to operate it through the agency of an insurance company in the State, an insurance company, let me hasten to say, for which I have the height of respect and an insurance company which has been established here for a long time and is a solid insurance company—I want to make that clear. Apparently a policy with a limit of £30 million would be placed with this company but the company will never be called upon to pay anything because if any claims are made they would be paid by the State.

The Minister in introducing this Bill gave us a little bit more information than he might have and for that he is to be thanked and congratulated. He was frank with the House and that is what one expects from Ministers of State although we are not always afforded the same degree of frankness. The Minister told us that he intended to appoint one insurance company as his exclusive agent in the issue of insurance policies and he said, later in his speech, that he intended eventually or in the long run or indeed, I suppose, immediately, that this scheme would be self-supporting and would not be run at any expense to the State. That means to me that a premium will be charged which will cover the risk and presumably the operating charges involved. That suggests to me that we should operate this scheme in such a way that we will obtain the best terms possible. I venture to suggest that the best way of getting competitive terms, and the only way of getting the best terms, is by competition, by shopping around and by inviting tenders.

We have in this country—and we should be grateful for it—a goodly number of reputable insurance companies. A number of them are owned exclusively by Irish nationals. I think the State has an interest in some of them. All of those to which I refer are based here and have branches throughout the State, giving good employment and a good service. Therefore, it is unreasonable so far as the other insurance companies in the State are concerned —and it is not in the best interests of the taxpayer—that we should be told by the Minister that he proposes to appoint this particular insurance company as his exclusive agent for the issue of this type of policy, on uncompetitive terms. The reason he gives for this is that this is the only company which has been issuing policies covering commercial and political risks for some time.

The fact of the matter is that, if that is so, it is probably so because it has already been given a monopoly under the Acts which we are amending. If an urban council are buying a receipt book, or a quantity of receipt books, they are required to get tenders and, all others things being equal, they are required to give the order to the lowest tenderer. If a local authority are building one public authority house, or a number of public authority houses, they must seek tenders. Indeed, they must submit these tenders to the Minister for Local Government for approval. How often have we had these tenders thrown back at us on the grounds that they are too high, and not competitive? We are asked to readvertise and to get better tenders, to get better value to save the money of the ratepayers and the taxpayers.

Here we were blandly told by the Minister for Industry and Commerce last evening that he proposes to give this £30 million insurance policy to one company without any competition. I do not know what they will charge him, but they will charge him. I confess that it is difficult to understand completely the workings of this scheme. We are told in one of the earlier Acts that the Minister may make arrangements, but we do not know what the arrangements are. I am taking it, until I am told to the contrary, that the procedure is that the insurance company concerned operates the scheme in the knowledge that it cannot be at any loss because it will be indemnified by the State to the tune of £30 million.

On behalf of this party and on behalf of the ratepayers and taxpayers, I want to express my disappointment at this type of procedure. There should be competition and at least the other companies in the State should get an opportunity of quoting. Indeed, there are precedents for going outside the State, not that I think that is desirable or to be encouraged. In one field or other, the Government have gone outside this country and brought in experts for one purpose or another because they could not get them here, or they could not get what they wanted here, or they could not get them at the right price.

I do not propose to labour this point any further but I want to say again that I have no axe to grind. I have nothing against this insurance company. I am speaking solely on a matter of principle. Some of my own business is with this insurance company. I am against this in principle because I think it is out of line with what is required by the various Departments of State from the local authorities which are subject to their sanction.

Mr. Kavanagh

I must be completely honest and say that my knowledge of the insurance business is very limited indeed. I have little or no practical knowledge of it. Like most other people, I have a life policy on myself and members of my family, and an insurance policy on the house. Apart from that I know little or nothing about the insurance business. Any insurance implies that a risk is involved and, in accepting a risk, an insurance company naturally tries to balance the cost of the policy against the likelihood of the risk arising.

The Minister said last night:

The operation of the new scheme of export credit insurance has been entrusted by me to the Insurance Corporation of Ireland Ltd. which, for some time, had been the only company issuing policies covering commercial and political risks and which henceforth will act as my exclusive agent in the issue of export credit insurance policies.

I want to comment on that statement. As other Deputies have said, it is either a piece of supreme honesty on the part of the Minister and the Government, or a piece of supreme arrogance, to state bluntly that they are going to hand over £30 million worth of business to one firm to the exclusion of all the other insurance companies operating in the State.

As chairman of the Wicklow Harbour Board I have had some experience of this company. Since the Minister has mentioned the name of the company it is fair for me to comment on the experience we in Wicklow had of this company. If other people who have to do business with this company as a result of this Bill meet the same problems as we did, I do not know how the Minister will react. If I tell him our experience it might have the effect of making him look twice at handing over all this business to this one company.

On 11th December of last year the insurers of the Wicklow Harbour Board, the holders of the limited liability policy on the harbour, and they were the Insurance Corporation of Ireland, wrote to us stating:

Dear Sirs,

We have been considering the question of renewal in this case, and have decided that we should not invite renewal of the Policy. However, in view of the short notice (the Policy was due for renewal on December 1st) we have decided to extend the Policy to December 31st at no additional premium to give you an opportunity of placing the risk elsewhere.

We are attaching suitable Endorsement Slip noting the extension of cover.

Your faithfully,

S. MAHER.

General Accident.

When the letter was received, the Harbour Master got in touch with me and asked for advice as to what we should do about the matter. This was a few days after a board meeting had been held and there would not have been another meeting for a month. The letter came at an unsuitable time because it is often almost impossible to locate people around Christmastime when they have started on their rounds of parties and so on, particularly in the city of Dublin. In any event, I came to town in the hope of seeing Mr. Maher. I did locate him but he refused point blank to comment on the letter other than to say that the decision was standing. He also proffered the information that this situation was likely to arise in the case of the Galway Harbour Board. I should mention here that during the past few years both the Wicklow and Galway authorities have experienced unfortunate accidents at their docks which resulted, in both places, in loss of life.

When we were told by the Insurance Corporation that they did not intend to renew the policy, we were placed in a most difficult position because when one is turned down by any insurance company, he will find it difficult to persuade another company to take the risk of covering him. In fact, it is almost impossible.

Mr. O'Hara

Hear, hear.

Mr. Kavanagh

When I put it to Mr. Maher that perhaps he was seeking an increase in the premium and that this matter could be discussed, he still refused, on behalf of his company, to renew the policy with the result that we were left in the position in which, for two months, there was no public liability insurance on the harbour in Wicklow. If any accident such as had occurred in 1969 had occurred during those two months, the harbour commissioners themselves would, I understand, have been liable. We all act in a voluntary capacity on boards such as these. People give of their free time and, in some cases, of their working time, to attend meetings of local authorities and other boards. This action appeared to be very high-handed on the part of an insurance company dealing with a local authority or a public body.

I bring this to the notice of the Minister because he is standing over all this business to an insurance company which, he claims, is the only company issuing cover for commercial and political risks. If our case is to be an example, this is not so because during the past few weeks we have been able to arrange cover with the Irish National Insurance Company which, I believe, is an Irish company. Therefore, I would like the Minister to tell us whether this particular company have been approached in connection with this business or whether any company other than the Insurance Corporation of Ireland have been approached. As I see it, it is a piece of supreme arrogance on the part of the Government and the Minister to hand over this business to this particular company. In the past this kind of thing was cloaked up and, perhaps, only leaked out after action had been taken but in this case we have it in black and white. It is only right that the Minister be put on his guard so far as this company are concerned.

I hope that if this company get business of this kind handed to them on a plate, they will regard it as being incumbent on them to take the more risky type of business such as is involved in harbour and public liability policies. While I was speaking to Mr. Maher he said "You know, we are in this business to make money as is the case with any other business". I appreciate this but, as I said at the beginning, insurance implies risk and one would imagine that, as Deputy Coughlan says, they must be prepared to accept the cream as well as the skim and not accept the cream only while leaving the skim to somebody else.

I would hope that the Minister would have exhausted all other sources before finding that this company were the only one that would accept this type of business. If free enterprise is to flourish in this country in all other aspects of business and commercial life, it should flourish also in so far as insurance companies are concerned and, if possible, public business should be sought either on a contract or tender basis such as suggested by Deputy Fitzpatrick. I hope that before the Bill is enacted, we, in this party, will have put down one or two amendments. This part of the Minister's statement was the only one in which I found any ground for comment. This type of Bill was introduced by the first inter-Party Government. It was welcome then and we welcome it now. We concur wholly with the changes that are to be made, for instance, the raising of the limit from £10 million to £30 million.

Mr. O'Hara

Overall, I agree with the principle of this measure. I am convinced that it is absolutely necessary. We all know that people who engage in business and particularly those who have accounts with firms outside the country, are usually a little anxious about the creditworthiness of these firms at home. Because I have had personal experience of the export business during a number of years, I appreciate fully the worries and anxieties that people have. It has been my experience that most of the risks relate to firms inside this country, particularly in this city, rather than to firms outside the country.

However, I consider this measure to be necessary. I recall a situation during the last war when, through circumstances beyond our control, it was necessary for the Government and the Department to establish agencies which dealt directly with the British Government. This was done because of the emergency conditions which prevailed at the time. I know from personal experience that those engaged in the export of eggs and poultry from this country had no worry about accounts because Eggsports Éireann, Limited, had this State guarantee and the exporter knew that his money was absolutely safe. Indeed, one effect was the creation of very keen competition because, when one knows one is absolutely sure of getting one's money, one is in a position to write off charges to cover certain risks one might have to carry. As I said, the result was the creation of very keen competition simply because exporters knew their money was safe.

Again, credit was available. One could go to one's bank for short-term or long-term credit. One could submit statements, though usually bank managers knew all about these activities and were quite prepared to advance any credit needed. Credit was very readily available. They knew the risk was very slight and bank managers were quite generous about credit to those who deserved it. I availed of this credit for short periods myself. It was very convenient and I never had any worry. If one's account was in the red one could arrange payment direct and one did not have to worry about lodgments. I should like to make the point here that exporters should know that they would be fully guaranteed against any risks that might arise.

With regard to insurance coverage, it is a strange thing that we all seem to believe that insurance companies are always making millions. Perhaps we get a little bamboozled with the £20 million and the £30 million that we see advertised as assets. Not being accustomed to dealing in millions we come to the conclusion that these people are making money night, noon and morning. But that is not always the case. Insurance, like banking, must be run on a proper commercial basis. If it is not it will run into financial difficulty. That has happened in England; a certain insurance company is in financial difficulty there. One can easily go into the red in insurance. Some insurance companies specialise. Some have a big line in life assurance. Indeed, most companies seem to be very keen on life assurance. They send agents all over the country canvassing for business.

There are risks, such as Deputy Kavanagh mentioned, on which the Irish Insurance Corporation does not seem to be very keen. As the agent quoted by Deputy Kavanagh said, they are in the business for what they can make out of it. They are people of experience and they know where the risks lie. They are not slow to pull out if there is danger. One has only to try to insure a boy or girl of 18 or 20 years of age for the purpose of driving a car to discover how difficult it is to get cover. Insurance companies are well aware of the high accident rate in this particular age group.

I am not to be taken as defending insurance companies generally. They are well able to look after themselves. I cannot understand why the Insurance Corporation of Ireland was selected in this case. I do not think the Minister has been quite frank about this. I agree with Deputy Tully that there should be a greater element of competition. We would all feel happier if we thought that other companies had had an opportunity of quoting. After all, £30 million is a sizeable sum and most people would assume they would get a good rate for this. Probably these people will not know for a few years exactly what they will have. They do not know whether or not it will be profitable. It is impossible to forecast at this stage. If there was a slump across the water and a number of companies suddenly went bankrupt the amount of money that would have to be paid out in compensation would be very great and it is at that point that the insurance company would have to remind the Minister for Finance that they would need to take another look at the rates payable. Ultimately they may have to come back and charge more. It would be healthier, I agree, if we had more open and freer competition. Perhaps the Minister, shopping around, discovered there were not many people interested in this kind of business.

I shall conclude by saying I welcome the measure. I would appreciate it if the Minister when replying would deal with some of the points raised.

Minister for Finance (Mr. Colley)

I am replying to this debate on behalf of the Minister for Industry and Commerce who is at present engaged in Seanad Éireann. The three main points made during the course of the debate are: First, the insurance practice of averaging has been attacked. Deputies have urged that a provision should be included in the Bill to prevent the application of this doctrine of averaging to export credit insurance. Second, concern has been expressed and objection has been raised to the selection of one company to act as the Minister's exclusive agent to operate the scheme of export credit insurance. Third, Deputies want to know why, if we have to have one company, it should be the Insurance Corporation of Ireland.

I propose to deal briefly with those points as follows: On the question of averaging the position is, when an exporter takes out export credit insurance, he pays his premium on the basis of his estimated export turnover for the 12 months ahead. At the end of the year he furnishes a return of his actual export turnover. If this is less than the estimate he receives credit for the excess premium paid and if his export turnover is greater than he had estimated he pays an extra premium on the difference. There is no question of average, or an averaged clause, in export credit insurance. If a claim arises the liability of the company will not be affected by any difference between the export turnover estimated by the exporter and his actual export turnover. Claims arising under these policies can arise only in relation to specific transactions covering goods sold or agreed to be sold to foreign buyers. In any such case the value of the goods is the price at which the exporter can show he has contracted to sell them. No dispute should therefore arise between the insurance company and the exporter as to the price of the goods.

There is considerable misapprehension on the selection of one company. The Bill does not purport to prevent any insurance company from engaging in this business. There is no provision in the Bill which even faintly suggests that. The difficulty has arisen in regard to the Minister's statement, which may have been misinterpreted. It seems to be thought that a monopoly is being given to one company. This cannot be said if in fact any company may engage in the business.

The position is that this is a State scheme and the Insurance Corporation of Ireland will act as the Minister's agent and any other company is free to engage in this business. It is unlikely that they will engage in it because as I will show in a moment it is not very attractive and it is unlikely they could compete with the terms of what is an effective State scheme.

Mr. T.J. Fitzpatrick

(Cavan): Our complaint is not that another company cannot go into this business; it is that no other company is going to get an opportunity of competing for this £30 million worth of business.

Mr. Colley

I shall deal with that. I want to make it quite clear that there is no question of precluding any other company from engaging in this business. What is involved is the appointment of one company as the exclusive agent of the Minister for the purpose of administering a State scheme. One of the basic misconceptions here is——

Dr. O'Donovan

This is a bit unusual.

Mr. Colley

Would the Deputy allow me to proceed and if at the end he is unhappy I shall endeavour to answer any question he has?

The amount of export credit insurance business available in this country is quite limited. It is estimated that up to now the aggregate premium income derived from the Minister's scheme of political risks in insurance together with the sale of commercial risks insurance by two insurance companies in all amounted to no more than £40,000 per annum. Even if there is a considerable increase in business as a result of the introduction of the new scheme the total premium income would not be sufficient to enable a worthwhile insurance scheme to be operated with reasonable benefits to exports and competitive premium rates if the business could not be concentrated in one organisation.

The second reason for entrusting the scheme to one company is that it was considered desirable by the working group to which the Minister for Industry and Commerce referred that the new scheme should be in the hands of one responsible body which would launch an active selling and information campaign about export credit insurance. Some Deputies may be under the impression that almost all exporters would find it necessary to take out export credit insurance and therefore the volume of business would be very great. However, as I have indicated the facts are otherwise. If this were correct the scheme would be much more attractive from the point of view of exporters than in fact it is.

We expect that the suggested limit of £30 million on the Minister's liability will be sufficient to last for at least three years. This figure can be set against total exports for 1970 of £468 million. Experience in other countries shows that the volume of exports insured varies from as little as 5 per cent to a maximum of 35 per cent. That maximum is attained only in Britain. So far as we know no other country insures anything like this proportion of its exports.

Under this scheme premium scales will be fixed by the Minister and not by the insurance company. The Minister's aim is that these premiums should be reasonably competitive with what other countries charge. When the premiums are collected they will not be the property of the insurance company; they will be remitted to the Minister less an agreed commission.

Mr. T.J. Fitzpatrick

(Cavan): That is the profit.

Mr. Colley

That is the company's profit. I am trying to point out that in effect the company would be acting as agent for the Minister. The level of commission being received by the company will be reviewed annually in the light of the actual experience of the costs of administration. I have here specimen copies of export credit insurance standard shipments policies and standard contracts policies which are issued by the Insurance Corporation of Ireland. They refer to the Insurance Corporation of Ireland, "as agent for and on behalf of the Minister for Industry and Commerce here-inafter called the `company' ". It is quite clear what the role of the company is.

Mr. T.J. Fitzpatrick

(Cavan): That is the beauty of it. As far as the insurers are concerned they cannot lose. They are going to get a commission for handling this on behalf of the Minister. He is going to underwrite them.

Mr. Colley

If it were as simple as that we would have had many more companies than we have had competing for this.

Mr. T.J. Fitzpatrick

(Cavan): Was competition invited?

Mr. Colley

The final decision in all matters relating to the scheme will rest with the Minister and not with the company. It is not however intended that the Minister will interfere in the day-to-day operations but arrangements have been made to have the working of the scheme reviewed at frequent intervals, probably quarterly in the beginning and later at six-monthly intervals, so that any difficulties can be identified and dealt with.

Arrangements have also been made for consultation with representatives of exporters about the operation of the scheme so that any problems arising for exporters can be brought to light. This consultation will be carried out by the Department of Industry and Commerce who will remain very closely in touch with the operation of the whole scheme.

I have personal knowledge about why the Insurance Corporation of Ireland was selected because what I am talking about now occurred when I was Minister for Industry and Commerce. The background to this is of course that competitors of our exporters have better facilities available to them. The whole object is to give our exporters a chance to compete on reasonably level terms with their competitors. When the introduction of the scheme was planned there were two Irish-owned and controlled insurance companies both of which were engaged in export credit insurance or had experience of it. On general principle I prefer not to mention the names of companies unless it is necessary. One of the companies was the Insurance Corporation of Ireland and there was also another company.

In addition to the two Irish-owned and controlled companies, there were two other companies known to have engaged in the business but they are no longer Irish-owned and controlled. We considered it desirable that a State scheme should be entrusted to an Irish-owned and controlled company and I think that, on reflection, Deputies would agree that this is as it should be.

The two Irish companies were approached. The company other than the Insurance Corporation of Ireland, after some discussion, indicated that they would not be prepared to handle this scheme. I think that, in itself, indicates that there are no vast profits to be made, even if there are no great risks involved. In fact, the Minister for Industry and Commerce will ensure that there are no vast profits made out of it. The Insurance Corporation of Ireland were prepared to handle this scheme and they were chosen.

The Insurance Corporation of Ireland are by far the most experienced company in this field. They have been engaged in export credit insurance for 15 years continuously and they do the bulk of the business done in this country. This is a field in which experience and technical knowledge on the part of the underwriters is of great importance.

I do not wish to get involved in the case referred to by Deputy Kavanagh. I would point out to him that he was talking about insurance other than export credit insurance. I think he was talking about——

Mr. Kavanagh

I was talking about experience with this company. This was my point.

Mr. Colley

Anyone can have difficulties with his insurance company and the fault may not always be on the side of the insurance company in any particular case. As far as I am concerned, the Insurance Corporation of Ireland have the technical know-how in this field. The company are most reputable and have a high standing both here and abroad. They have been carrying this export credit insurance, profitably, presumably, on their own account in relation to commercial risks. They will no longer be able to do this because they are operating this scheme and they will be confined to acting as agents of the Minister for an agreed commission.

I think when Deputies realise what the actual position has been and the choice open to the Minister, they will agree that there was no alternative for him. There were two Irish companies operating in this field: both were offered the business; one declined and the other accepted. It is as simple as that. I hope that the House, on knowing the facts, will agree that it was the only way the Minister could administer the scheme.

Question put and agreed to.

Dáil Éireann debate -
Wednesday, 3 Mar 1971