Dáil Éireann debate -
Thursday, 20 Oct 1988

Vol. 383 No. 2

Insurance Bill, 1987 [Seanad]: Second Stage (Resumed).

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

Mr. Enright

Last evening I was dealing with the cost of employers' liability insurance. There is a view among the Confederation of Irish Industry and employers that the high cost of insurance is the result of very high awards being paid to people who are injured in accidents in the workplace. Employers and insurance companies put too much emphasis on the level of awards granted to people injured at work. It is more important to concentrate on reducing the number of accidents and the avoidance of accidents in the workplace. It is very important that greater attention should be paid by the Department of Labour, the Confederation of Irish Industry and employers to providing proper safety education for staff. There should be regular briefings by employers — with the co-operation of trade unions — telling employees the safety precautions which should be taken at work. This is vitally important.

The inspectorate in the Department of Labour should be much more vigilant in enforcing safety regulations. If a man loses a hand, an arm or a leg at work, no amount of compensation can make up for the loss of the limb. The worker will have to suffer that loss as long as he lives. Much more attention should be paid to educating the workforce on safety precautions at work. We read in the papers that a person who has suffered horrific injuries — he may be left quadraplegic — gets £1 million compensation but that does not make up for the injuries he has suffered. I remember a person being granted £20,000 in the sixties and there was an uproar. At that time it was unheard of that a person would get so much money by way of compensation. I was in the Four Courts when the jury announced that award of £20,000, the biggest award ever at that time. The papers were full of the story and they were saying that this would have an effect on insurance premiums. I do not know if that man is alive, nor do I remember his name, but that £20,000 would not make up for the injuries he suffered. Since the sixties awards of £100,000, £200,000 and so on, have been granted. That is a lot of money but no amount of money can compensate for the injuries these people suffer. When people are injured at work they must get compensation so that they can get proper medical and nursing care. The cases I am talking about are injuries at work, people involved in car accidents, children injured at school and so on.

As regards employers' liability insurance, there are far too many accidents taking place in factories all over the country. There is supposed to be an accident book available for the departmental inspectors, but I wonder how often these officials inspect these books. If the book shows that accidents are happening regularly, the official should take action. I have been a qualified solicitor for more than 20 years and in all my years in court I have rarely, if ever, seen any action brought by the Department of Labour against employers when a person was injured at work. If action were taken, the chances are that many of these accidents would not occur. These statistics should be available to the Department of Labour. The Department have power under the Factories Acts and Safety in Industry Acts and they should ensure that proper safety precautions are being taken.

The Department used to issue the Annual Report of the Industrial Inspectorate of the Department of Labour. As far as I can ascertain the last annual report published by that inspectorate was in 1983-84. I can understand a delay of three, six, 12 or 18 months, but the last official report was issued in 1983-84. The inspectorate of the Department of Labour monitor what is happening in the workplace. I accept that there has been a reduction in staff numbers because of the cutbacks, but it is essential that we reduce the number of accidents in the workplace. With the co-operation of the Department, the employers and trade unions, the number of accidents can and must be reduced. If the number of accidents is reduced premiums will be lowered. We must emphasise this fact. I urge the Department to be more vigilant in this area.

The Minister for Industry and Commerce mentioned the measures to be taken by the Minister for the Environment. He said:

Also, the Minister for the Environment is proposing to introduce new legislation to strengthen the road traffic code and to deal more effectively with certain aspects of uninsured driving and other offences. The measures proposed could include the impounding of motor vehicles to deal with uninsured driving.

I welcome that statement and I am certain it will have the support of almost every Deputy. Efforts must be made to curtail the proportion of people driving without insurance — about 20 to 25 per cent. This means that those people who pay insurance must also pay for those who are driving uninsured vehicles.

Another aspect not covered by the provisions of this Bill is that of road accidents occasioned by the condition of our roads, with potholes, damage done to road surfaces, occasioning damage to vehicles, which in turn, leads to accidents. It is crucial that additional measures be taken by the Minister for the Environment to improve our roads structure. Whatever measures the Minister introduces to tighten up the Road Traffic Act code and alleviate insurance problems — to render our roads structure safer for traffic generally — will have the full support of this side of the House.

I must pay tribute to the relevant Ministers who introduced legislation to curb drunken driving and to the Judiciary for the commonsense manner in which they enforced the terms of such legislation which has led to a considerable reduction in the incidence of accidents on our roads. Long may it continue.

Medical insurance has been the subject of a vast amount of publicity in recent times because of a number of actions, one of which is at present on appeal and to which I will not refer in detail today. A solicitor, Mr. John Schutte, held a seminar recently in the vicinity of this House, the theme of which was how medical personnel could reduce their liability on account of medical negligence. I can foresee clearly that there will be increased claims on the part of patients against nurses, doctors and hospitals because of the reduction in personnel in hospitals throughout the country. Personnel in our hospitals are now working under such stress and strain it is bound to affect their judgment on occasion and their ability to maintain proper medical records. Indeed such stress is bound to affect decisions which have to be taken on the spot. Inevitably this means that accidents can happen leading to increased claims being lodged against the medical profession. It is of the utmost importance that care be taken to monitor patients' treatment in hospitals in order to avoid such claims.

In recent months there have been a number of deaths in hospitals some of which might have been avoided. A patient may die because a nurse or doctor physically could not attend him or her. That patient's family have a right to proper compensation. Again, if a patient suffers permanent damage on account of postponement of an important operation they were awaiting, he or she is equally entitled to compensation.

There has been much discussion about the high cost of insurance premiums here. People tended to blame an unfortunate victim of an accident awarded high damages by our courts. Because of the collapse of two or our insurance companies — the PMPA and the Insurance Corporation of Ireland — a levy has been imposed on all insurance premiums. That was occasioned by the lack of proper management control on the part of those companies in the past. I remember when premiums were increased annually by the PMPA, say, 15 to 25 per cent brought about by imprudent investment, lack of management control within the company and so on. The same applied in the case of the Insurance Corporation of Ireland some of whose management decisions proved to be grossly imprudent or incorrect. It is the consumer who suffers by way of increased insurance premiums. Therefore, we must ensure that all our insurance companies are run efficiently under proper management procedures. Here I might pay tribute to the new management of the PMPA and the Insurance Corporation of Ireland who took over those companies in difficult times.

The Department of Industry and Commerce have a responsibility to ensure that our insurance companies are properly managed and run efficiently. They had power to seek information about the running of those companies and are seeking additional powers under the provisions of this Bill. It is essential that they be given those powers.

One matter that concerns me a lot is that of pillion passengers on motor cycles not covered by the provisions of this Bill. It must be recognised that pillion passengers are not covered by insurance. Even if the driver of the motor cycle is 100 per cent blameworthy and his or her pillion passenger is injured — even if the most horrific injuries are sustained such as loss of a limb or back injury — he or she will not be paid a penny by way of compensation in 97 per cent of cases. It is essential that legislation be introduced to ensure that such pillion passengers be compensated by insurance companies.

With the completion of the internal market in 1992 there will be tremendous scope for expansion among our insurance companies in all branches of insurance and assurance. Our insurance companies have the ability and expertise, built up over the years, to enable them to compete with their European counterparts.

The regulations giving the Department additional powers to seek information from insurance companies will be of benefit to the companies themselves. It is my belief that they have a great future by way of expansion of their businesses after 1992, attracting business here from Europe.

Mr. Foley

I welcome the opportunity of speaking on this important Bill. I understand that the last Insurance Bill was introduced in this House in 1936. Insurance is so important to the nation and commerce generally I am surprised that further legislation was not introduced sooner.

The purposes of the provisions of the Bill are, first, to strengthen the Minister's legislative powers in relation to the supervision of insurers, secondly, to regulate commission paid to intermediaries where policyholders' interests so require and, thirdly, to introduce a form of regulation for insurance intermediaries.

I am very much aware of the problems facing sporting organisations, residents' associations and community groups because of the cost of public liability insurance and the availability of cover. As chairman of Cork-Kerry tourism, over the past two years it has been brought to my notice by my committees — especially festival committees — that they are being forced out of existence due to the high cost of public liability. In many cases their premiums increased by 400 per cent in 1987-88. Some years ago the cost of insurance was never a matter of concern to Kerry County Council but the figures now being produced, particularly for employers' liability and public liability, are causing headaches for the finances of the county council. The fact that the Irish public bodies' insurers are probably the only insurance companies which will cover local authorities indicates the real problem in liability insurance. Every local authority public liability policy carries an excess of £5,000 on each and every claim and this adds greatly to the overall budget of Kerry County Council and other local authorities.

While public liability and employers' premiums for local authorities are soaring, the fire prevention budget in local authorities is saving millions for insurance companies. I suggest to insurance companies that they make a contribution to each local authority as they provide excellent fire protection services and save millions of pounds to the companies in regard to fire losses.

In recent years we have become a nation of legally minded people. This applies to most countries, particularly America. The result is that claims and court actions have increased causing higher premiums for motor insurance, employers' liability and especially public liability. I hope that the Courts Bill to abolish juries in personal injuries cases will help to reduce premiums. There is evidence that motor insurance premiums have been reduced and I hope that public liability and fire liability will also be reduced in the near future. At the same time, I urge the Government to introduce new legislation to strengthen the road traffic code and to deal more flexibly with certain aspects of uninsured driving and other offences.

I had hoped that the compensation fund would be abolished because, as Members of the House know, it has been in operation since the collapse of the PMPA. It is wrong that people who never had a car in their lives are paying 2 per cent on their fire policies to support the PMPA and ICI. I know the fund can be used to meet claims arising from the liquidation of non-life insurers but all Members will hope that it will not be extended to meet other claims. Perhaps the Minister will comment on this question. An article in Aspect recently suggested that all might not be well with an insurance company looking for business over the telephone. I would welcome the Minister's comments on the article as I am sure it has been brought to his attention.

The supervision of insurance cannot guarantee solvency but it is very important for the Minister to have full power to take immediate action to deal with problems as they arise. Section 36 refers to the power of the Minister to require a reduction in commissions. May I assume that the Minister can request an increase in the commission rates? It is wrong that building societies can get as much as a 25 per cent commission on house insurance policies and that brokers' commissions can be as low as 12.5 per cent. I do not blame the building societies, the insurance companies should not allow this to happen. The vast majority of agents and brokers are to be congratulated for carrying out their business in a very responsible fashion. However, we all know that difficulties have arisen in the past and, unfortunately, as in the case of other businesses, there are "cow-boys" who tarnish the good name of the industry. We all know of cases of fraud, usually in the area of single premiums. I hope the Bill will raise the standards of agents and brokers and I know that the two bodies mainly dealing with the matter — NIBA in particular — have been trying to raise standards over the past number of years.

The big fault in the Bill is the definition of "agent". Section 43 defines "agent" as a member of a representative body of insurance brokers which requires compliance with the provisions of the Act as a condition of membership and a body recognised as such by the Minister. Section 44 provides that the broker has a professional indemnity bond which varies according to the size of the brokerage. An average small country broker's bond is in the region of £5,000. Section 46 states that the consumer bond must be to the value of approximately £25,000. Section 47 states that he must have a separate bank account in connection with life insurance. Indeed, the agent must have several bank accounts. The broker is compelled to maintain an office, pay staff, PRSI, telephone, etc., in addition to many other outlays. The agent has no expense except the consumer bond and yet he is almost equal to the broker as he is allowed to have four life and four non-life agencies. Any conduct unbecoming has to be paid for by the insurance company as outlined in section 50. I am not happy with this section so I ask the Minister to reconsider the matter and to reduce the number of agencies to one life and one non-life to an agent. After all, an agent is a casual or part time employee. In many cases the agent is a bank manager, a garage owner or a teacher. It is evident that the broker has a responsibility which is not recognised and I hope the Minister will draw a line between a broker and an agent. It is estimated that there are approximately 700 brokers operating here, in rural areas many of them are small and independent. If this legislation is not changed, I fear that most of the rural brokers will go out of business.

I should also like to refer to the number of people who find it difficult to acquire insurance, in many cases they are not even quoted. It is very important that something is done for these people because their job and future could depend on it. If they are quoted a price for insurance, it verges on the ridiculous. Fifty per cent of the population are under 25 years of age and it is essential that they are given an opportunity to get some sort of car insurance. A number of reasons are given for the high cost of premiums, one is the number of uninsured vehicles. This will have to be dealt with in another category because there is a number of uninsured cars on the road. However, young people should not be penalised for this.

The Motor Insurance Bureau were set up to alleviate hardship for the victims of uninsured motorists and I hope they will take the initiative in dealing with young people. I am open to correction but I understand that out of a total of about 750,000 somewhere between 150,000 and 200,000 motorists are uninsured. This is major legislation and a milestone for the industry, the wider financial services industry and — equally important — it is a major breakthrough for the consumer. The Insurance Bill is only one element in a comprehensive package of legislation which the Government are bringing forward, embracing the Central Bank Bill, the new building societies legislation and the companies legislation all of which amount to a radical overhaul and updating of our financial services legislation. The Government are bringing forward this legislation at a time of rapid change in the insurance industry. The legislation will provide a framework within which these changes can be accommodated in a way that protects the solvency and stability of the industry, gives much greater protection to the consumer and generally prepares the industry for the major competitive challenges it will face after 1992. In short, this Bill is a charter for the insurance industry for the nineties.

The Minister for Industry and Commerce has already set out in some detail the structure and content of the Bill. I do not intend to cover the same ground again, but I think it worth reminding ourselves of the main provisions. Part II sets out new provisions in relation to insurance companies. In many ways this part merely regulates the existing provisions and EC requirements. Clearly it is important that the Minister has ready access to all information necessary in relation to insurance companies, in particular the balance sheets. The public rightly look to the Government to anticipate the difficulties which may arise and provisions have been included to require auditors to report certain matters to the Government. Let me stress that in this legislation the Government are not seeking in any way to intrude on the day to day management of the company. What the Government are intent on doing in Part II of the Bill is ensuring that the stability of the industry is adequately protected.

The second major purpose of the Bill, in Part III, is to regularise commission payments to insurance intermediaries. On a number of occasions the necessity for these provisions has been spelt out. The consumer must be protected from the abuses associated with excessive commission payments and Part III does just that.

The third absolutely essential element to the Bill, Part IV, relates to the provisions for the first time of a form of regulation for insurance intermediaries. This is long overdue. The insurance industry is a major area in the financial services industry carrying increasingly closer linkages between insurance companies, the banks and non-bank financial institutions. It is essential that some form of regular control be imposed over insurance intermediaries. Let me stress that in setting out the structure contained in Part IV of this Bill the Government's overriding aim has been to raise professional standards within the industry. A form of recognition has been granted to insurance brokers who form the professional core of the industry and the provisions are also aimed at strengthening the accountability of insurance agents. The Minister for Industry and Commerce has already set out the intended structure in detail. Here I want to underline the thinking behind it and in this context the importance which the Government attach to the various provisions of the Bill designed to protect the consumer. These include, for example, the separation of clients' accounts, provision of a compensation fund and, more generally, an increased accountability and higher professional standards which will be required of both companies and insurance intermediaries.

It is a well known fact that we need a strong competitive and stable insurance industry which enjoys the full confidence of the consumer. The Government believe it is very much in the interest of the industry to maintain high standards. At the same time the Government cannot take this for granted. We need to strike a balance, and that balance is contained in this Bill which takes account of the very extensive consultations with all interested parties. High standards are running through the Bill, and this will benefit the consumer. It would also help the brokers and the companies to stay in business particularly after 1992.

We should see this Bill in the wider context of a development programme for the insurance industry which the Government have put in place over the last year or two. Insurance costs have been brought down. In motor insurance, for example, costs have fallen by up to 10 per cent. The Courts Bill is already bringing about a fundamental change in the cost structure which will help to reduce the motor insurance premiums further. More recently the Minister for Justice announced new pre-trial procedures and the introduction of a book of quantum of damages. At the same time the industry is in excellent financial shape. The preliminary figures from the Blue Book show a continuing reduction in underlying losses, a drop in the ratio of net claims to earned premiums and a rise in the net premium income. These important developments mean that the major Insurance Bill is being brought in against the background of a strong solvency industry which is bringing its costs down.

I commend the Bill to the House. It is in the right direction. As I said at the outset, we have had no such serious legislation since 1936 and I hope and trust this is a step in the right direction.

Mr. Durkan

I will not detain the House very long. I would like to make a few comments in relation to this legislation which itself is welcome in the sense that it introduces a certain extra requirement for compliance, as it were, in certain aspects of the insurance industry, but I think a review of the insurance industry at present should have extended far beyond the ambit of this Bill. I am not being critical of the Bill itself which is welcome in so far as it goes, but quite a number of other aspects need to be dealt with at present. For instance, in this country we have become a very claim conscious society with claims in relation to virtually every aspect of life. Every profession is subject to claim of one kind or another on an ongoing basis and the number of claims is increasing. This, in the context of 1992 and the internal market and what it will mean, will become more obvious the closer we come to 1992. One thing I hope to see happen then would be that we would have an insurance system in this country whereby reasonable rates could be available to people who want to insure, notwithstanding the increasing amount and number of claims that are coming before the courts and against the insurance companies.

I want to take a couple of examples. Some of these were mentioned by my colleague Deputy Bruton last evening. Take, for instance, the cost of employer liability. It would have been a very good time to look exactly at that problem now. It is a cost, an overhead to industry, to the provision of jobs and to the economy. We accept that the money which the insurance companies collect in premiums is put to good use, useful investment purposes and so on, but the actual cost to the employer or the person attempting to provide jobs and encourage investments and get other people to do likewise is of such a nature in comparison with our European partners at present as to make it virtually impossible for our employers to operate on a reasonably equal basis. That simply is unacceptable. It is wrong that we should have that kind of situation at present, but unfortunately that is the way it stands. It has got worse and it will get worse and when 1992 comes there will be a period where certain disciplines in the insurance industry will have a derogation for a number of years. That is grand, but we must remember that business and industry in this country will be opened up to very stiff competition from people who will be in manufacturing and services outside the country, and who will have access to our markets as well as to the market in which we are supposed to be able to compete, the European market. The people in this country providing financial or manufacturing industry services are entitled to be able to compete on an equal basis but because of the huge cost of employer liability insurance at present it is not possible for them to do so.

There are very many other overheads which are excessively high. Generally, we have a very high level of taxation which is also a disincentive and we can do without the problem of high premiums in the insurance area. The insurance companies will say, rightly so, that there are compelling reasons for this situation. It is all right for them to say so but the logical conclusion of continuing along that road is that we will reach a stage where it will be virtually impossible to get employer liability insurance at all.

Let us examine two examples of public liability insurance and take the case of either a very large firm or a very small firm. I have had countless experiences over the past couple of years of small family firms operating in conjunction with the local authorities, semi-State bodies or health boards in the service areas. They had adequate public liability insurance until decisions were taken albeit for very good reasons, whereby their premiums were either doubled or quadrupled. They then had to make a decision whether to continue in business or try to raise the money required for the insurance premium. Many of the smaller companies took the decision to get out of business because they could no longer afford it. They also had the possibility of operating in the black economy and operating without cover. They would have serious problems if they took that option.

Unless order is introduced in this area of insurance we will see in the very near future a vast growth in uninsured activity which is insurable, and desirably and very necessarily so. If some measures are not taken soon there will be a large-scale evaporation of small businesses because the businesses are no longer capable of footing the bill required to carry public liability insurance. This has not come to our attention suddenly. We are told that by virtually every business person in the country. They compare the premium for public liability insurance and employer liability insurance in this country with the premiums in the UK and Europe. Rates are higher in some areas but in many areas the rates are far lower. We have enough disadvantages, particularly in regard to access to markets, without creating and foisting further burdens upon ourselves by virtue of a situation which could be and should be controlled.

How do we explain to business people that they should be penalised with regard to public liability and employer liability insurance? They ask that question repeatedly. They get lots of bland answers from the insurance companies as to the excessive claims and the size of the claims. That is of little consolation to them. They are in the business of competing in the open market and their competitors could not care less whether their insurance premiums were quadrupled every year. The net result is that those who carry that extra overhead have to find some means of absorbing it or passing it on. Unfortunately this Bill does not tackle that problem at all. This is a serious flaw in the Bill at present. I think it was necessary at this stage to take a long hard look at the issue and to find out whether it would be advantageous to take up the issue or whether it should be postponed to a later date.

Let us also consider the question of insuring public amenities and recreational centres. It is virtually impossible, in fact it is impossible, for voluntary bodies and local authorities, in many instances, to get insurance cover for play or amenity areas which are used by children. However, I know the local authorities have made certain arrangements themselves whereby they have got around some of the problems but to a great extent voluntary groups are out and they cannot get cover at all. This is a sad and tragic situation because the voluntary groups have been providing facilities and services which are in tandem and in support of or additional to those provided by the local authorities and the statutory bodies. In many cases the voluntary bodies provide the services where they do not already exist. It is impossible for those voluntary organisations to get insurance cover. I ask why? The answer given is the continued volume and cost of claims and that the "once bitten twice shy" law applies. I accept that is a factor but it is also a factor in the other countries with whom we trade. However, in other countries they have facilities and seem to be able to cater for these problems but we do not seem to be able to get to grips with them. Somebody has to take responsibility whether it be the Minister, the Department or the insurance companies. We will have to get together to work out a solution to that problem. But come it must. It is grossly and totally unfair that local voluntary bodies who collect their funds locally and provide facilities for the enjoyment of the community at large find that insurance cover is not available to them. The Minister should intervene very specifically in this area as soon as possible. In order to give recognition to the great service and work of the voluntary bodies he should make insurance cover available to them on the basis that the individual members concerned will not be faced with a huge liability should a particular claim arise.

I wish to deal with a few other aspects of insurance. This Bill will have some helpful effects on the cost of motor insurance. I do not think it is going to have a dramatic effect. Other speakers have referred to the difficulties experienced by young drivers when trying to get insurance, and I know one insurance company in particular has been instrumental in recent times in reducing premiums specifically in that area, which I think is laudable and helpful. I have often spoken, and I am sure every Member of this House must have spoken to people who say they do not mind paying a high insurance premium when they start off driving but that they expect it to come down at some stage. They would expect it to come down much quicker than it usually does. Generally speaking they will point to people who have had continuous claims over a long number of years and seem to have relatively lower insurance premia than they themselves have, despite the fact they have a clean record, albeit for a shorter time. The moral of the story is that those who have had the most claims are expected to have to pay more. Obviously insurance companies are doing that but those who seek insurance for the first, second or third time are also paying very heavily for the privilege of getting that type of cover. There is considerable room for manoeuvre. We should think about it and encourage the insurance companies to go down that road. For instance let us take the case of hauliers and consider the bills they have to face for employer and public liability insurance together with the insurance on their fleet at present. Any haulage contractor or carrier will tell you at present that the combination of those three factors makes it barely possible for them to exist, to comply with the regulations and live within the law. That is not something that has happened yesterday. It has been growing considerably over the past number of years and will continue to grow unless someone somewhere sits down and works out a formula for dealing with the problem. This Bill gives an opportunity to the Minister to look at the whole position.

Debate adjourned.