Insurance (Amendment) Bill, 1978: Second Stage.

I move: "That the Bill be now read a Second Time."

I note that Deputy Kelly is in the House on behalf of the Fine Gael Party. We have a second industrial Bill being discussed this morning, or at least two Bills involved in employment, and I note that not one member of the Labour Party is gracing the House with his presence.

I will let the Labour Party speak for themselves. But if the Minister is going to start his speech on that note, let me point out that there is not a single member of his party, bar himself, in the House either.

The main purpose of this Bill is to allow banks licensed under the Central Bank Act, 1971, to engage in certain types of bonding and guarantee business so as to facilitate the needs of the Irish construction industry. Over a considerable period the construction industry has made representations about difficulties being experienced by it in having its bonding requirements met by the insurance market in respect of contracts arising abroad. This situation has seriously affected the ability of our construction firms to compete in foreign markets and the problem is being accentuated by the tendency of many foreign clients to require that bonds be issued by banks rather than by insurers. In the course of considering this problem and in the light of further representations from the construction industry it emerged that difficulties are also being experienced by construction firms seeking bonding arrangements to cover contracts at home. I propose under this Bill to allow the licensed banks to engage in this business in future, both home and abroad, and to do what are commonly described as development bonds also.

I am advised that certain export industries would also be helped if banks as well as insurers were enabled to meet their bonding requirements and the Bill proposes to allow the licensed banks to engage in bonding and guarantee business required by such enterprises in relation to their exports or the provision of services outside the State. Provision is also made in the Bill—in clause (C) of subsection (1) (a) (ii) of section 2—to ensure that Irish banks will not face legal obstacles in guaranteeing loans to customers wishing to borrow for projects in Ireland from international financial institutions or from EEC sources such as the European Investment Bank. These bodies represent an important source of capital for industry or major projects. The law as it stands was regarded by the banks as not making clear their power to give guarantees of the kind referred to and the provision now proposed is intended to put beyond doubt the power of the banks to give such guarantees.

As a result of representations made by the banks following publication of this Bill I have agreed, in order to reflect what is normal banking practice, to legislate for the licensed banks to issue all forms of pure financial guarantee regardless of where the needs for such arise. In doing this the need to refer to specific financial institutions as was the case under section 2 (2) is not now necessary. I propose to introduce an amendment to the Bill to remove the statement at section 2 (1) (a) (ii) (C) which reads "being a contract to which a body to which this clause applies is a party," and to delete section 2 (2) accordingly.

Another important area dealt with in the Bill relates to the issue by foreign banks of bonds or guarantees in respect of the construction, manufacture or production in the State of any thing. This provision at subsection (2) (1) (b) is seen as of assistance to the need of the operations in Ireland of foreign companies. Such Irish operations often depend on the guaranteed backing of their parent companies' banks when the Irish based enterprise is getting finance from the Irish banks. In the Bill, the ability at law of such foreign banks to engage in guarantee business is limited to cases where bonds or guarantees are required by the licensed banks as a condition of granting financial facilities, and the provision is no wider than this.

Here again the banks, following publication of the Bill, urged on me and I have accepted that this provision also should be extended to allow foreign banks to engage in the business of pure financial guarantee where this is required by and given to the licensed banks, and I will propose an amendment to that effect at the appropriate stage.

The Bill will also allow the licensed banks to engage in bonding and guarantee business in some further areas closely related to banking business such as in relation to lost bank notes, missing documents, bills of lading etc.

The matters to which I have referred have up to now been governed by the provisions of the Insurance Act, 1936, which confined guarantee and suretyship business to licensed insurance companies only. By providing for the availability from the banks, in defined areas, of the services covered by this Bill, I consider that I am meeting a clearly established need. Moreover in giving to banks the powers proposed under the Bill I am enabling them to do what is already the widespread practice of banks in other countries. My proposals in this area have been the subject of discussions with the insurers, the banks and the construction industry, and I think can be said to enjoy broad consensus.

None of the provisions of the Bill will affect the ability of insurers to continue to engage in the business of giving bonds. As a technical operation it will also be necessary by Statutory Instrument to amend the European Communities (Non-Life Insurance) Regulations, 1976, to take account of the Bill's provisions and to free the banks from the requirements of those regulations in so far as they engaged in the type of business provided for by the Bill.

I have taken the opportunity of this Bill to increase the export credit scheme cover. The Minister for Industry, Commerce and Energy has powers under the Insurance Acts 1953, 1969 and 1971 to give guarantees with respect to the insurance of risks in connection with the export of goods and in relation to the rendering of design and planning services, the work on which is carried out in Ireland in connection with engineering and constructional works executed abroad.

Export credit insurance enables exporters to insure against loss the risks entailed in selling goods abroad on credit terms. These risks fall into two main classes: commercial risks arising from default or insolvency of the buyer, and political risks, arising from the outbreak of war or revolution in the buyer's country or from Government action in the buyer's country which would prevent the goods being delivered or paid for. Examples of such action would be the introduction of new import controls or restrictions on payment transfers.

The purpose of section 3 of this Bill is to provide for an increase in the aggregate amount of the liability which may be assured by me under the Insurance Acts, 1953, 1969 and 1971 for export guarantees covering the insurance of risks in connection with the external trade. This increase from the existing limit of £30 million to £100 million is made necessary by the growth in the value and volume of exports being insured under the present export credit insurance scheme. It is envisaged that the proposed limit of £100 million should be sufficient to cater for the growth in demand for export credit insurance over the next three to four years.

It will be appreciated that the aggregate potential liability could only fall to be met if the multiplicity of risks covered by all the insurance policies issued should materialise. Such a possibility is extremely remote, indeed. For the information of Deputies the present export credit Insurance Scheme is operated in such a manner that taking one year with another there is no net loss to State funds.

The enactment of these provisions will, I feel sure, be greeted with satisfaction by the construction industry, manufacturers and exporters and indeed all of us who are aware of the importance of these industries to the nation's overall wellbeing and have no hesitation in commending this Bill to the Dáil.

On behalf of my party I welcome the Bill. We support and see the good sense of it. I am surprised it has taken so long for an uncontentious measure in no way commissioned by party politics to emerge from the Minister's Department. I do not blame the Minister's administration solely for that but I remember making representations to the Minister's predecessor five years ago on this matter and being told that legislation was either being drafted or was under consideration. This need is a known need and has existed for a long time, and I am not sure why it should have taken so long to produce this relatively short Bill.

The only point of substance I want to make arises from what seems to be the lost opportunity to extend the scope of the Bill to possible future needs, additional to those which the Bill actually envisages. I call them possible future needs but it may be that they have already arisen. There are forms of enterprise, as the Minister probably realises, in which Irish firms and institutions are beginning to engage abroad and very glad we are to see it happening. These may require the giving of a guarantee or a bond of the same kind as those involved in the construction industry and they do not seem to be covered by the terms of the Bill. One instance would be the development of a firm abroad. There is a well-known Irish firm in the business of developing completely equipped and supplied farms in some parts of the world where that kind of farming is not yet known, where a large tract of land is taken over, irrigated, developed, stocked and so on. While it is true that the equipping of a farm in Saudi Arabia must involve putting up a number of farm buildings and may involve the export of something from Ireland, the whole job seems to be of a different kind than that which the Bill envisages. I should like the Minister to consider drafting the Bill in such a way that if the need arises for the giving of guarantees by banks in respect of undertakings of this kind he will not have to come back here with a further amendment of the Insurance Acts in order to take account of it. On a reading of the Bill it seems that the instance I have given is not covered by it.

Another instance which, I am glad to say, is now becoming well known is the equipping of a hospital abroad. I do know of at least two instances where an Irish hospital has had the honour of being asked to lay on a complete hospital or unit of some kind in which equipment has to be installed, equipment which in many cases has not been produced here. Again, a guarantee may be required from a bank. If all the equipment is produced here the export of it would probably be covered by the Bill. If what is being paid for is the skill of our medical people in planning a hospital or a unit and devising a scheme for equipping it and ordering that equipment from Sweden or the USA, it may be that that operation will fall outside the scope of the Bill.

The last instance is of a pure consultancy service. It may be that consultancy services in engineering not purely connected with construction as defined in the Bill, or some other kind of service, may require guarantee by a bank. I would have thought it useful to take the opportunity which the Bill affords us of extending its terms so that activities of this kind, and other activities of which no examples yet exist, would clearly come within the terms of the Bill. If my remarks are based on a misunderstanding of the Bill, I apolgise to the Minister. If I am right—in other words, if the need has already arisen or might arise for the giving of bank guarantees for activities of the kind I have instanced—then this is the moment to amend the Bill. That could be done by either expressly amending the Bill, which might involve delay by trying to con-struct useful definitions, but it might be possible to do it in an uncontentious area like this by including a new section which would give the Minister power to extend the list by order, subject to the usual conditions that the order might be annulled if challenged within 21 sitting days. That would be a way of doing it, perhaps a more satisfactory way than wasting time trying to evolve suitable definitions for the kind of activity I have mentioned.

In subsection 2 (2) the word "Governments" seems to be unfortunate. I think I know what is meant but I could imagine a financial institution which was set up by official, State-authorised financial institutions in foreign countries, such as the central banks of foreign countries. For all I know they may have legal authority to join in setting up an international finan-cial institution without concurrence on the part of their Governments. I wonder what the Minister's Department mean by "Governments". For all I know, the Governments in the countries which he has in mind may not all have the same constitutional complexion that our Government have and there may be autonomous financial institutions which could co-operate in setting up an international organisation of the kind which the Minister would wish to come under section 2 (2) but which the use of the word "Governments" may prevent from so coming.

My last point concerns drafting. It would be neater in section 2 (3) not to go through the rigmarole of giving a definition of the 1971 Act because that phrase occurs only twice in the Bill. It would be easier in the definition of "banking business" and "licensee" to say "granted under the Central Bank Act" or "as in section 2 of the Central Bank Act, 1971", rather than for the sake of these two references go through the ceremony of including a separate definition. The use of this formula will definitely put people astray, even if only for three minutes, and they will turn with a gesture of annoyance back to the Bill looking for this definition. Anyone not concentrating on the first definition in that subsection would automatically assume on reading the term "Act of 1971" that it was the Insurance Act of 1971 which was in contemplation. That happened to me yesterday. When going through the Bill a second time I came upon this expression and of course I could not find these definitions in the Act of 1971. Only then did I turn back as I should have done to the beginning of the subsection to see that it had this special meaning. It would be neater and cause less irritation for busy people if the definition were taken out and the phrase "Act of 1971" were expanded in the way I suggest.

I welcome the Bill and hope the Minister will give some consideration to the first two points I made.

I am very grateful to Deputy Kelly for the warm welcome he has given to this measure. Regarding the delay of five years, I refuse to accept responsibility for the first four of those years. As far as the fifth year is concerned, this was one of the jobs I was given when I was appointed last January. Deputy Kelly will know from his own experience that very often the shorter the Bill the longer it takes to draft and the more complicated it is.

Regarding the points made by Depputy Kelly, the possible future needs with regard to the development of the farm, the equipment of the hospital and general consultancy work are all covered in section 2 (1) (a) (ii) (A) which relates to the provision of any service outside the State or the export of any thing. The matters raised by Deputy Kelly regarding development of the farm would be a service outside the country. The equipping of the hospital would be covered by the export side and items bought abroad would be covered by the service side. Consultancy would also be covered. That is the interpretation but I will have it examined to see that the points raised are fully covered and I will come back to Deputy Kelly on this on Committee Stage.

The second point concerned the use of the word "Governments". That whole subsection is going anyway, as I men-tioned in my introductory speech. I will examine again the use of the phrase "Act of 1971".

A larger insurance Bill is at present being drafted and any inadequacies in this Bill may be covered there. However, I would hope to clear them up on Committee Stage. I am grateful for the warm welcome given to this Bill and I will be circulating amendments during the day.

It may be that paragraph (A) would cover a consultancy service of an engineering kind but I think the example I gave of the development of farm land would scarcely be covered. It certainly would not be covered by paragraph (B).

It would be covered by paragraph (A).

It would be better to put it beyond doubt.

Question put and agreed to.
Committee Stage ordered for Tuesday, 5 December 1978.