I join other Deputies in welcoming this legislation which has found general acceptance from all sides of the House. One thing I have noticed during this debate is the number of people who started by saying this legislation was long overdue. Unfortunately, most contributions to debates on legislation seem to start with those kinds of phrases. We always seem to act a little later than we should. Nevertheless, this Bill, the first in this area since 1936, is welcome.
As previous speakers pointed out, there is no question but that this legislation is needed, and badly needed, for what will happen in 1992. We have to get our house in order in this and many other areas. The Bill is timely. There is no need to remind Members or the public that not so long ago we had the collapse of two major insurance companies, and the chaos that brought about. This legislation is also necessary for consumer protection. Our standards in this area, not just in relation to insurance but to so many other things, are sadly lacking. This problem has to be tackled before 1992 because the European regulations will supersede our national regulations if we do not take these matters in hand.
This legislation is also necessary for another reason. As Deputies are aware, the primary objective of this Bill is to regulate insurance companies, and particularly to regulate the intermediaries in insurance. The necessity for doing this becomes very obvious when one considers the significance of intermediaries in the current Irish insurance market. While we do not have any definite figures for the Irish insurance market, we can make reasonable "guesstimates" following on the United Kingdom experience.
Taking the figures in the blue book for insurance for 1982 to 1985, the brokers' share of the life market in Ireland amounted to approximately £1.8 billion, 65 per cent of the total life insurance business over that period, or a yearly average of £450 million. The figures for the non-life market are almost as spectacular — in the region of £1 billion for the same period. Those kinds of figures bring home the importance of the role of intermediaries, particularly brokers, in the insurance industry in this country.
When we look at these figures we see how important the insurance broker is, not just to the industry but also to the economy because the bulk of the money taken by the insurance brokers is invested in Ireland through the insurance companies. That provides massive employment directly for the 4,000 insurance brokers, the insurance company employees, and the projects in which the insurance companies invest. We are talking about huge sums of money and a very significant sector of the economy.
In relation to consumer legislation, I particularly welcome the Bill because, more than any industry in this country, the insurance industry, rightly or wrongly, is notorious for the small print in insurance policies. Well informed people in insurance matters know all about averaging in relation to house insurance, but I venture to suggest that up to 75 or 80 per cent of the general public who have house insurance do not know anything about the average laws, and many of them get a shock when they put in a claim and are told the maximum the insurance company will pay is 50, 60 or 75 per cent of the claim because, they say, the insured was only half insured, or three quarters insured. That problem has been alleviated slightly by the insurance companies themselves in the recent past by index linking policies but nevertheless, there are some people who are caught by it.
A number of policies have obscure clauses which never come to light until a claim arises, when they are regularly quoted, when the insurance company will know what is the position in law and when, very often, the consumer loses. Indeed the inclusion of such obscure clauses in policies has become so prevalent that the public's general impression of insurance is that one is insured as long as one does not claim, that it is then problems come to light. Many consumers have been caught by unscrupulous, fly-by-night operators who wanted to make a fast buck selling useless policies and who could not be traced when problems arose.
The provisions of sections 16, 39 and 40 will help to alleviate problems caused by small print, by rendering insurance companies and their intermediaries responsible for spelling out to their clients exactly the cover provided under the policies being sold to them. It is time all consumers had a clear idea of exactly the cover provided when they purchase an insurance policy. I hope that the Ministerial regulations will ensure a positive improvement in that respect.
In any discussion of insurance matters — and this has been the case over the past two days also — always there will be plenty of submissions and theories advanced on the cost. As Deputy Durkan said, unfortunately most people do not link their claims and those of others with the cost of premiums. The attitude appears to be: I am insured and, if given a chance, I will lodge a claim as quickly as possible. Yet the same people are surprised when the cost of insurance premiums rises annually. Unfortunately this compensation mentality has become prevalent in our society over the past ten years resulting in increased premiums having to be sought. It will be readily seen that the increased cost of insurance cover is a direct result of the attitude and activities of individual members of the public and of some companies. It is true to say that insurance premium costs have gone through the roof. The insurance companies and the insured will have to share the blame. Undoubtedly, in the past, there were mistakes on the part of the industry that contributed to those increased costs.
I should like to give one or two examples that contributed to those increased costs of insurance cover. A major factor was the under-provision on the part of various companies in respect of claims outstanding over the years. Most Deputies would accept that part of that under-provision on the part of companies was inadvertent. Possibly lack of professional expertise led to other under-provision. I am glad to note that the Minister will have powers under the provisions of this Bill to regulate the professional expertise of actuaries and others working for insurance companies which will help alleviate this problem of under-provision.
In a recent magazine survey I read the one peculiar aspect about such under-provision was that all of the United Kingdom-based insurance companies, or whose parent company was situated in the United Kingdom, appeared to be able to arrive at more accurate estimates or figures for accident provision. On the figures I have seen I would have to say that Irish companies were notorious for their lack of provision in respect of outstanding claims. Over the years possibly successive Ministers turned a blind eye — particularly in regard to companies incorporated in Ireland — perhaps feeling that, if they took action leading to an increase in premiums, there would be a public outcry. That appears to have been the attitude adopted resulting in all of us having to pay now for that lack of action by way of levies and so on in order to fund companies that collapsed. As somebody who always paid a slightly higher rate of motor insurance premium — having been warned that some companies were not making adequate provision for outstanding claims and were in danger of collapse — I resent that I must now pay higher premiums and a levy to compensate for the cheap insurance cover offered to other motorists by irresponsible companies in the past. We should beware that we do not fall into the same trap again.
On the latest figures available to me I note there is at present one insurance company that has made inadequate provision for outstanding claims between the years 1982 and 1985 in the motor insurance area. For example, in 1982 there was an under-provision of minus 3 per cent, in 1983 minus 6 per cent, in 1984 minus 7 per cent and in 1985 minus 35 per cent. Yet that company is at present quoting motor insurance premiums at approximately 20 per cent less than the average pertaining in the industry. They have now set up a subsidiary company one can telephone seeking a quotation. That subsidiary, in turn, is quoting rates 10 per cent less than its parent company. I have in my hand an insurance renewal form of that company showing a renewal premium at £321.77 and a revised quotation — showing all the relevant details given by way of telephone to its subsidiary — at £279.84. There must be something wrong there. It is something about which the Minister and everybody concerned in the industry should be very careful. While the parent company consistently under-provided for outstanding claims in the years 1982 to 1985 its subsidiary is now under-cutting them. That is not a healthy sign for an insurance business or motorist.
The second cause for insurance costs here being more than average is the high costs associated with our courts system and the reaction of the industry to that system. Thankfully that pattern is changing because of legislation introduced. As other Deputies have said, claims for outrageous amounts have been settled out of court because of the ludicrous awards being made by the courts. Very often insurance companies decided to settle, at the eleventh hour, on the steps of the court, that being the safest way out for them. However, one must remember that huge costs would have been incurred up to that point. Like other Deputies, I welcome the recent Courts Bill and other moves by the Government — to which I will refer later — to reduce costs.
A third point referred to has been the problem in relation to liability insurance, particularly employers' liability. The Minister referred to the fact that because of moves by the Government these costs are reducing but it is reckoned that employers' liability accounts for nearly 2.5 per cent of a company's payroll. The blame for the high rate of employers' liability is usually put on court awards for on the job injuries. That is certainly a factor but it is not the only one. We are victims of the successful policy in the sixties and seventies of developing the industrial base here by attracting the large multinational companies. That was very successful from an economic and industrial policy point of view but it also created problems of a new urban work-force being introduced into what had been, up to then, a largely rural community. Obviously, when there is a change from an agrarian and rural back-ground to an industrialised environment, it causes a certain amount of friction.
One of the problems that arose as a result was that, in common law, the liability only arose from the obligation that each person had to exercise care in his actions so that he did not cause bodily injury or damage to others. Therefore, in common law, employees were only entitled to damages if an accident was caused by an employer's personal negligence. In other words, an employee had no claim against an employer merely because he met with an accident in his employment. That was the situation but, unfortunately, with the increase in industrialisation and the strength of the unions this notion of personal liability diminished. I am not criticising unions — they are there to help their members — but, because of their structure, they helped to centralise the legal process. One solicitor can facilitate a number of small claims by doing a job lot in relation to industrial action. That certainly led to an increase in the number of claims and, in some cases, there was a suspicion that workers deliberately inflicted minor injuries on themselves. However, the employers could not get rid of those workers because of a threat of a strike or other industrial action. The strength of the unions certainly tied the employers' hands to a certain extent.
The fault for the increase in claims does not lie only with the workers, employers must take their share of the blame. Generally speaking, in Ireland employers and managers are not as attuned to the need for safety in the work place as they are in other countries and that has led to an increase in accidents. The records show that the majority of accidents result from the failure of management to provide safety features at work. The records also show that, in many cases, managers fail to comply with statutory obligations in regard to safety. At the moment, common law underpins the rights of workers to a healthy and safe workplace. Unfortunately, instead of the employer using the law to try to reduce the risks in the workplace, the worker claims from the employer on the basis that the workplace was not safe. The employer, if he was doing his job properly, would use the legislation as a basis for making his workplace safe, thereby reducing the risk of claims against him. Employers and workers contributed to the problem of increased costs in employers' liability. Both groups and the insurance companies can contribute to the reduction of costs in this area. If employers were more vigilant, if there was more co-operation between employers and employees and if there was an increased promotion of safety by employers, employees and the insurance companies, employers' liability insurance premiums could be dramatically reduced. I know that over the past few years the insurance industry has assisted various firms in relation to safety orders and on site inspections by giving advice to employers, managers and workers on how to avoid accidents. It is a welcome trend which should be encouraged.
The Irish Insurance Federation contributed £170,000 to the National Safety Council this year as a means of promoting the idea of safety which, in turn, will be of benefit to the employer and the employee. There is no dearth of legislation in relation to safety at work. The 1980 safety at work Act, if implemented in full by employers, would considerably reduce the amount and the frequency of claims. Another way to reduce the number of claims is by the employment of properly skilled people to manage and superintend businesses, for instance, the appointment of safety officers. In general terms, they should try to get across to employers and employees the idea of a safe place in which to work, which would be of enourmous assistance. In this regard, statistics show that in normal production procedures the rate of accidents is roughly one to 1,000 employees. In stressful conditions this is increased to one to 100 employees. In other words, safety goes by the board but it would be far better to have safety at work instead of depending on the person to adopt proper safety procedures.
Public liability was mentioned by Deputy Durkan and various other speakers, particularly in relation to community organisation. In this area, the situation has reached crisis proportions and organisations such as tidy towns committees, sports clubs and various voluntary organisations find it virtually impossible to get public liability insurance. I know — and Deputies in other constituencies would echo this — of voluntary groups who normally held one or two fund raising events for worthy causes in their local areas for years on end but who stopped doing that in the past two or three years because of the high cost of public liability insurance. People in voluntary organisations, sporting, athletic and community organisations give freely of their time and talents to help young people and the elderly in their community, to make their community generally a better place to live in but they are currently having to back out of these voluntary organisations, stop fund raising, stop holding events of a voluntary nature in their parishes because public liability insurance cost is so high. It is completely and totally prohibitive. I know of one athletic club in my area catering for over 100 young people under the age of 18 and they were quoted something in the region of £700 or £800 for public liability insurance. The club just could not afford that with all the other costs they had in relation to transporting athletes around the county and to various parts of Leinster. Something has to be done, therefore, in relation to public liability for community and voluntary organisations.
The answer everybody has to financial problems nowadays seems to be to look to the national lottery, but as I recall it, the national lottery was set up to facilitate youth in sport, to provide money for facilities for young people and for sports facilities. Its base has been broadened considerably. We should have a look again at the national lottery to see if there might be some way in which an insurance scheme to cover voluntary organisations for public liability could be introduced. People giving of their time are withdrawing from those organisations and that is to the detriment of communities. The expenditure of some moneys from the national lottery, even if it was only .05 per cent of the funds, on public liability claims, specifically for voluntary youth and sport organisations, would be money well spent.
So much for the cost of insurances. In this regard I would like to commend the Government on the action they have taken in the past 18 months to try to bring down the cost of insurance. We have mentioned already, and so have other Deputies, the Courts Bill, the introduction of the two-counsel rule and the other procedures and decisions taken by the Government that should be implemented in the next few years which should lead to a reduction in insurance premiums. Perhaps the most important contribution the Government have made is to have brought about the beginning of change in people's attitudes in the area of insurance and claims. The attitude up to now seemed to be that the only way of meeting insurance claims was to increase insurance premiums, but now the industry and the Government, working together, have been able to change that attitude. Changes are coming about within the systems we are operating and these will lead to a reduction in premiums. The other factors the Government have mentioned and are working on at the moment are the pre-trial procedures, the implementation of the Barrington Commission report on safety at work, and the production of a book of quantum of damages. All of those taken together and implemented would lead to a reduction in premiums, and the sooner the better. In this regard the action of some insurance companies in the past year towards reducing premiums for the under 25s for motor insurance has been most welcome.
Part III of the Bill deals with the Minister's power to intervene in the area of commission paid to insurers. I suppose the history of this goes back to the early eighties when a voluntary commissions agreement was reached but never properly implemented. It was open to many abuses. In 1986 the previous Government told brokers and insurance companies to get their act together and talked about statutory regulations in relation to commission agreements. Last August agreement was reached with the IIF. Since then that agreement has been implemented and adhered to, with the exception of one of the new life assurance companies, and it is working reasonably well.
The problem I see arising as a result of this agreement is that it may be in conflict with EC regulations in this area. While I welcome the agreement from the consumer point of view — it prevents abuses creeping in where brokers or people would be offered huge inducements to promote a particular company's product — and it is useful as a consumer protection measure, the caveat I have in relation to it is that a similar agreement in Britain which was sent to the Commission for ratification was thrown out by the EC. I am not too sure about the situation here, but industry sources inform me that we may not have got a warning shot across our bows about that. The agreement in Britain has been thrown out by the EC and if the same thing happens to the agreement we have here we will go back into a free for all in relation to commissions. The Minister might have something to say on that.
Part IV of the Bill deals with the regulation of intermediaries. This is probably the most important part of the Bill from the consumer point of view. Its aim is to regulate the professional standards of those acting as intermediaries. I think all of us in the House would say that it is an excellent move, that it is about time it occurred. It should clarify for the consumer the exact status of the person from whom he gets his advice. Deputy Foley and other Deputies have mentioned that the Bill is in need of strengthening in this area. Section 43 refers to intermediaries as those members of recognised bodies: "or, not being a member of a recognised representative body, he complies with the provisions of this Act...." That is very vague. Certainly the second part of the section is vague. It cannot be allowed to go through unamended and the Minister will have to look at it again. It is too vague for the insurance companies and certainly too vague for the brokers. How are an insurance company to know whether a broker is recognised by the Minister for the purposes of the Bill? Is the Minister going to introduce a system of certification or something to say, "this person is recognised by me" and the certificates can be issued by the insurance companies?
This is very vague and will certainly have to be clarified. I concede to a certain extent that the reason the Minister might have made this provision in the section is to protect brokers that are currently giving a good service but who are not involved in any of the organisations, perhaps because of membership fees which they may not be able to afford or for their own reasons. There are a number of brokers who were never involved with the two recognised bodies NIBA or CIBA but are involved in insurance for a lifetime. They know it inside out and are very professional in their approach. Under the section the Minister is trying to allow those brokers to continue in business. But if that is the Minister's intention, I think he should consider possibly adding a stipulation to this section whereby new entrants to the insurance business would have to be a member of one or other of the recognised bodies. We can leave the people who are in practice and have been in practice for years as they are and let them be phased out over a period of time and all new entrants to the business would then have to join one or other of the recognised bodies.
I also think that the Bill is not strong enough in relation to the distinction between agents and brokers. I feel it is very weak in this regard. To my mind a broker is a man who can provide a service which is beneficial to the public. A broker is totally professional in his approach, a man that knows the business inside out. I think it is very important that a distinction should be made between the broker and the agent because the average insurance purchaser does not know that there is a difference between an agent and a broker. The intermediary, whether he be an agent or a broker is the person at the point of sale. His influence is very significant in terms of the clients' choice of policy. Because of the complexity of the insurance product nowadays it is no exaggeration to say that, whether the intermediaries be agents or brokers, their advice and conduct are absolutely crucial to the average insurance purchaser. However, I think a problem facing the purchaser which is not addressed in the Bill is that he has to be aware of and able to distinguish between an insurance broker and an insurance agent and indeed to be able to distinguish between a qualified and a non-qualified broker.
In my opinion the term broker means a full time insurance intermediary, a person who holds agencies for many insurance companies and a person who offers professional advice and service to his clients. It is clearly established legally that the broker is regarded as acting as an agent for the insured, while in law the agent does not hold himself out as possessing any special expertise. An insured person who suffers financial loss as a result of a part time agent's lack of knowledge has little or no legal redress, whereas a broker caught in the same situation could be legally pursued by the client if he did not give the proper advice or was negligent in giving his advice. That is why brokers have to have professional indemnity insurance. The insurance broker is the professional, giving a full service and he is not tied to any particular agency or any insurance company, whereas the agent is. Therefore, the distinction must be made between agents and brokers. I do not think that by giving an agent four life and four non-life agencies we are helping to clarify for the consumer the difference between an insurance broker and an insurance agent. The term used to describe this is polarisation and this does not happen in the Bill. You cannot really say that there is polarisation when an agent can have up to eight agencies, four life and four-non-life. I think an agent should be restricted to one agency, one life and one non-life.
I noticed in a document sent to us by the Irish Insurance Federation that they have claimed that reducing the number of agencies for an agent would lead to a reduction in choice and I quote:
Any move to force "polarisation" on the market will create instability in the marketplace and ultimately reduce the choice available to the consumer.
I do not know how they can make that claim because no matter what we do in relation to reducing the number of agencies an agent can have, the market will remain the same, the number of insurers will remain the same, so therefore the choice and availability will not be reduced. If you reduce the number of agencies an agent might have the only reduction that might occur is a reduction in the number of cowboys operating in the area.
There is a legal problem in relation to agents with more than one agency. An agent is demand to be acting for his insurance company. If he does not do his job properly or is negligent and there is a claim, the insurance company can be sued. What would happen in a case where an insurance agent with four agencies fills up a proposal form, takes a premium from the client for fire insurance, for example, but forgets to put the policy into force and then the insured person's house goes on fire? Which company does the insured person then claim from? The agent is an agent for four companies and all four of them will disclaim any responsibility for it and the consumer ends up in a situation where he cannot win because he cannot sue anybody. There is also no provision in the Bill in relation to agents. A practice has grown up whereby agents for a particular insurance company are appointing subagents. A type of cowboy operation has been going on in the midlands for some time. I think the legislation should make it clear that if a person is appointed an agent he has no right or authority to appoint a sub-agent as is happening currently.
I see another problem arising in relation to brokers and agents. When professional indemnity insurance is introduced and certainly both NIBA and CIBA require it, a situation could arise where brokers would revert to agency status to avoid having to pay the high cost of professional indemnity insurance. I do not know if there is anything in the Bill — perhaps the Minister might tell us if there is — to stop individuals from a firm of brokers, perhaps where there were three or four brokers in one firm, from setting up individual agencies and circumventing the requirement for professional indemnity when it comes into force. In other words, if there are three brokers in a brokerage firm what is to stop each one of them from setting up four life and four non-life agencies, giving a total of 12 of each in that business? I have failed to find anything in this legislation to prevent brokers from doing that and circumventing the requirement for professional indemnity. There is a possibility, if the Bill remains as it is, that brokers will revert to agency status and possibly do what I have outlined because it will save them their bond, the professional indemnity and a lot of overheads.
One other aspect of the Bill that I want to mention very briefly relates to the section which allows the Minister to recognise another brokers' body if such a body was set up. As I have said, there are currently two bodies in existence for insurance brokers, NIBA and CIBA. As far as I know, and I do not hold any brief for them, they are operating in a very professional manner. They are trying to regulate for insurance brokers who are members and trying to ensure the highest of standards. I have not heard any complaints about them but two bodies is probably one too many. The Minister should not allow for the setting up of any further body. Brokers who wish to become members of professional bodies should be well able to fit into one or other of those two bodies. I have a fear that if the Minister allows a number of other bodies to be set up it will dilute the effectiveness of these bodies. We all know what happens in union terms — there are so many unions that they become practically ineffective. To allow more bodies to be set up that purport to represent insurance brokers or other professionals would not be a good idea and the Minister should not allow it.
One aspect which is not dealt with in the Bill and which perhaps could be dealt with is the position of building societies and their circumvention of the Building Society Regulations, 1987. This relates to insurance for mortgaged properties. These regulations were introduced in 1987 to prevent building societies from forcing people to insure their houses with particular insurance companies. The building societies have been trying to circumvent this by issuing indemnity forms, one of which I have here. This makes it virtually impossible for the mortgage holder to change insurance companies. I do not know whether this matter can be incorporated into this legislation but it is something that should be considered by the Minister as a matter of urgency.
Like most other Deputies in the House, I welcome the general content of the Bill. I have reservations in relation to the lack of distinction made in the Bill in relation to agents and brokers. I would like to think that changes will be made in that regard on Committee Stage and that we will have agents who are truly agents and brokers who are brokers and who will provide a complete and total professional service to the general public. The purpose of the legislation should be consumer protection and it falls down in that one respect.
