Deputy Desmond O'Malley is in possession.
Insurance Bill, 1987: Second Stage (Resumed).
Question again proposed: "That the Bill be now read a Second Time".
When I was speaking on this subject the last day, I raised the question about the extent of the duty that is placed on auditors under section 35 of this Bill. I repeat the question whether the penalty provisions in section 3 applied to it or not. If not, how in general terms is it intended to enforce it because of the fairly subjective element which is predominant in that section, even though I greatly welcome the section and wish that it had been there perhaps some years ago.
One of the major events that one can foresee in the reasonably near future in this country, that will have a significant effect on insurance generally and on the insurance market, is the advent of product liability. This debate so far does not seem to have dealt with what the insurance consequences of product liability are likely to be. Under the Directive that has been passed in Brussels the liability on manufacturers is a very considerable one. The liability that can potentially attach to Irish manufacturers is very substantial, indeed. It is necessary, and vital indeed, for them to have proper insurance cover against that liability. Proper cover may well be extremely expensive if one is to go by the premium levels for liability insurance generally in recent years — motor, employers' and public liability.
In replying to Second Stage the Minister should deal in some detail with this matter because I do not know of any single foreseeable event that is likely to have as great an influence on the insurance market here in the next few years. It is necessary to remind ourselves of what the position is in the United States where they have had this form of product liability for a while and where the costs frequently associated with it for manufacturing companies are, frankly, astronomical. Many companies in the United States are able to survive because of their sheer size and wealth but a great many Irish companies will never be in a position to survive claims of that type. The problem may not be as great because of the recent abolition of juries, but it is too early yet to make any real assessment of the effect of that in practice.
I might add, since it is very much tied in with the issue of insurance, that I keep reading inspired comments put into newspapers by people who do not like what has happened saying that the abolition of juries has not made any difference to the cost of insurance. I see that even barristers are running to local provincial newspapers telling them that it has not made any difference——
Especially barristers.
I do not think we are in a position to judge its effects as yet because it has only been in operation since 1 October 1988 and the number of cases is very small indeed. I am not aware of any outrageous award having been made by a judge since, and if one were to look at juries, at the very limited way in which they have operated in civil cases on this island in recent weeks, one can only say thank God they have been abolished in almost all civil actions. The last jury decision that I read of on this island was made two or three weeks ago in Belfast in favour of Messrs. McCartney and Bowe where they each received from a jury a sum of £50,000 sterling, which is a total approximately of IR£120,000 plus costs, which probably will amount to not less than £50,000 for a most ridiculous so called defamation, in which the newspaper said they had some slight verbal altercation outside the window of a cake shop in Bangor, County Down — I think — and had some minor argument about which of them was to be entitled to buy the last éclair in the window. If that is worth £100,000 sterling in the eyes of a jury I think the right decision was made in this House last May or June.
How about Koo Stark?
Miss Koo Stark has also been the beneficiary of a jury. However, the fields in which she dabbles are more difficult to assess and quite different from the question of the éclair in County Down. Obviously, it will take a couple of years before we get to a stage where a proper assessment can be made. I am very glad that this step has been taken in regard to juries. Apart from the cost of insurance, the very necessity to try to achieve justice is better served by what has happened. Even though there may be vested interests at work to try to undo the benefit of the legislation, I hope that on calmer reflection they will not try to impede its operation in any way.
Part III of the Bill deals with the question of payment of commissions by insurers. While I cannot vouch that it is the same word for word, it is certainly similar in intent to a Bill I introduced in 1982 to try to cope with the problem, that arose at that time, of the payment of extraordinarily excessive rates of commission by some life assurance companies to brokers and to other intermediaries. It was not necessary in 1982 to proceed with the Bill through all stages, because its introduction and Second Reading was enough to make the companies concerned realise they were not going to get away with what they were doing and they voluntarily stopped the practice. I was then able to withdraw the Bill. But I fully support its re-introduction as Part III of this Bill. It is important that the Minister for Industry and Commerce would have these powers in case this practice were resorted to again.
It may surprise people to learn that the rate of commission paid by a number of life companies in this country at that time was 130 per cent of the premium. In some small number of cases the commission was as high as 150 per cent of the premium. The person who suffered most by that rather outrageous level of commission was the consumer, the person taking out the insurance. The overall premium he had to pay annually reflected this exorbitant rate of commission which was being paid by a limited number of life companies who were operating here at the time.
I find it a bit surprising that a voluntary agreement entered into in 1982 between the life assurance companies as a result of the Bill that I had brought in here in that year has recently been found by the European Commission to be in breach of Article 85 of the Treaty of Rome, as inhibiting inter-state competition. The purpose of that agreement was to put a limit on the maximum percentage which could be paid in commission on both life and non life insurance premia. I think the Commission in deeming that agreement invalid have taken a very theoretical view of competition and competition policy but I do not think that what they are doing is in the consumers' interests. Clearly, it would have been in the consumers' interests that such an agreement was maintained to prevent excessive commission being paid. What clearly would not be in the consumers' interests would be an agreement between companies that they were going to keep commission above a particular level or that they were going to enter into a cartel arrangement. Strangely enough, the Commission is doing the very opposite and for that reason it is all the more vital that Part III be there because they cannot find the provisions of this Bill to be in breach of Article 85, if it is part of national legislation affecting all those who are trading within the jurisdiction. That is why it is particularly important that it should be there at this stage.
An aspect of insurance which is not specifically referred to in the Bill, but which certainly needs some consideration, not just by the Minister for Health but by the Minister for Industry and Commerce also, is the whole vexed and sorry question of health insurance. We are aware of the tremendous difficulties now being encountered by the Voluntary Health Insurance Board. While there are several reasons for its present unfortunate difficulties, one of the reasons is that the Act which governs it, the Voluntary Health Insurance Act, 1956, is very limited in terms of what it allows the Voluntary Health Insurance Board to do.
The Deputy will agree that that is not the responsibility of the Minister sponsoring this Bill.
The Voluntary Health Insurance Board is not the responsibility of the Minister but the question, which I am coming to, of what the board should be allowed to do would be the responsibility of the Minister sponsoring this Bill.
It is properly the responsibility of another Minister.
One of the suggestions and requirements of the board is that they should be allowed like other insurance companies to extend their activities beyond health insurance. This is only reasonable. They have too many eggs in one rather delicate basket at the moment.
May I ask if the Minister is accepting responsibility for the VHI in this area?
The VHI are not regulated by the Minister for Industry and Commerce but by the Minister for Health. The Department of Industry and Commerce do not have a function in relation to the VHI.
I am aware of that, but I am making the suggestion, as I think I am entitled to do on Second Stage, that the Bill should cover matters wider or beyond what is actually in it.
It is an Insurance Bill.
I am suggesting that the Voluntary Health Insurance Board should be treated and allowed to trade as any other insurance company. They would extend their categories of risks thereby in a way that would be helpful to them and that would perhaps avoid or alleviate the severe difficulties they have encountered in the health insurance field in the past two years.
There has been talk of other insurance companies, who at present are precluded by the 1956 Act from writing health insurance here except of a very limited kind, coming here to write insurance in competition with the VHI, who at present have a monopoly. I have seen some of the correspondence which has been, as one might expect, with the Department of Industry and Commerce and subsequently with the Department of Health. The companies concerned thought it appropriate to correspond with the regulatory authority here, which is the Department of Industry and Commerce. It would be unwise and totally unfair if companies like that were allowed in here at the present time, given the way the hands of the VHI are tied. If on the other hand the VHI were given a free hand to operate in the way any other insurance company can operate, I would then welcome that competition, provided it was fair and equal and that those coming in were not allowed simply to take the choicer risks by insuring only the health of younger and healthier people, leaving the more expensive risks of elderly people to the VHI. Major changes will have to happen in this field and consideration of them should certainly not be confined to the Minister for Health. The issues at stake are very broad. Apart from widening the field in which they should be allowed to operate as an insurance company, the VHI should be given power, for example, to acquire and run hospitals if they think it appropriate. I believe the VHI have been anxious to do so and I can well understand the reason. It seems incredible that they own no hospital or part of a hospital in this country, whereas one of their big potential competitors from Britain, BUPA, who are not allowed to trade here at present, have the majority stake in one of the largest and most expensive of the modern private hospitals here.
Part IV of the Bill deals with the question of the regulation of insurance intermediaries. Some aspects of this are controversial and different people have different points of view, depending on their own particular interests. I am sure some people are not very happy with Part IV as it stands, but I believe it provides a reasonable way of dealing with the problem. It is rather different from what it was when originally introduced in the Seanad. The Third Schedule, for example, has been removed and various qualifications which were originally required are gone. It is a reasonable way of trying to approach it. It is not perfect but it is probably as good as we can get, given the various competing interests. In particular I am glad that the English concept of polarisation of agencies into one has not been introduced. That would have been quite inappropriate, although I understand there was pressure from the brokers for this to be done. It would not have served the interests of the consumer, particularly in rural areas where it is very important that he be given as wide a choice as possible by whatever agent he is dealing with.
Parts III and IV deal with the question of commission and the regulation of insurance intermediaries. There is one point which is not dealt with in the Bill, although I thought it might have been. That is the question of controlling in some fashion the relatively new concept of services charges which has been introduced by intermediaries. A broker, in addition to bring remunerated by the company by way of a percentage commission on the premium can, under our existing law, add a service charge to the gross premium and send the bill for the total amount to the customer. He is not obliged to disclose the amount of the service charge and frequently customers who are insured do not know that there is a service charge. If they are aware of it, they often do not know how much it is. I do not know if it is desirable to let that situation continue. Some years ago an order was introduced in the Seanad to control that practice. It was during the term of the previous Government. The order was passed in the Seanad but never introduced in this House. As a result it did not become law since to do so it would have had to pass through both Houses. The Government apparently had second thoughts about it, perhaps as a result of representations made to them.
I should like to know what the position is in that regard and what proposals or thoughts the Minister has. I am not advocating that the practice should be outlawed, but the amount of the charge should certainly be disclosed. I am informed that in some cases the service fee can be as much as 50 per cent of the premium, which is very much higher than justified. In the great majority of cases it is very much less than that and many brokers do not charge it at all. I think there are many classes of business in which it is not charged either. It tends to be charged on motor insurance to people who find it difficult to get cover. The premium which may already be excessive is made much more so if a charge of that kind is added to it.
The main part of this Bill is Part II which deals with the supervision of insurance companies in some detail. I agree with its provisions and there are many points of detail where perhaps it could just as easily be done somewhat differently but some choice has to be made about how you do it and I do not see any serious reason for disagreement with the general scheme now proposed for supervision. It is a great improvement on the position up to now. In particular, I refer to sections 16, 17 and 18 which give the Minister general powers to acquire information, to carry out investigations and to intervene in cases of doubtful solvency. They set out in some detail how he goes about that and what he can do. I agree with all these proposals which are, by and large, reasonable as they increase his powers and all the rest of it.
However, you must look at how these things operate in practice. It is not just a question of setting them out in sections in a Bill and seeing if they look all right. How do they operate in practice? If any kind of investigation is carried out under sections 16, 17 and 18 and it becomes known that it is being carried out, that immediately and of itself has an effect on the company concerned. There is a tremendous sensitivity about these matters. One suggestion I make to the Minister in relation to these sections is to try to give the impression that these are routine things and that they can or should go on virtually every year. He should not distinguish between something that is routine and something that is done because he believes there is a danger of insolvency or of under provision for claims.
You will see what I mean by section 16 (1) which states:
Whenever the Minister considers it necessary in order to satisfy himself whether an undertaking is complying with its obligations under the Insurance Acts, he may require the undertaking to prepare and submit to him....
Section 17 (1) states:
Whenever the Minister considers it necessary in order to satisfy himself whether an undertaking is complying, or has the ability to continue to comply....
Section 18 (1) states:
If the Minister has reason to believe—
(a) that an undertaking is or may be unable to meet its liabilities or
(b) that an undertaking whose head office is in the State is or may be unable to provide the required solvency margin....
The Minister may intervene in a case of doubtful solvency. However, if he is known to be intervening under section 18, he puts the whole world on notice that it is a case of doubtful solvency. I had to struggle with that problem for quite a while and therefore, I realise how difficult it is at times even if the law is fully adequate to act under it without causing huge damage.
The Minister is given powers under these three sections, basically, to withdraw the licence or authorisation if he is not satisfied as a result of his investigation, either to withdraw generally or to withdraw it in respect of any particular class of business. Short of that, he does not have a great sanction. That again was one of the difficultes I faced, you either went the whole way and put them out of business or you were powerless. I would not be averse to withdrawing the licence or authorisation from a company for a particular class of business if I was not going to distort or disturb the entire market. That is grand if you are dealing with a company who have 5 per cent or 10 per cent of the market in a particular class of business but if you are dealing with a company that had 45 per cent or 50 per cent of a market and all the other operators in the market did not want any part of the market anyway, then you would cause devastation. For that reason, it is very important that the Minister for Industry and Commerce at all times would keep under close scrutiny the precise shares of the market held in each class of business by each company operating in it. Naturally, I am talking about non-life business because the problem does not really arise in respect of life business.
There are classes of business where it is particularly undesirable that any company should have more than, at the very outside, 15 per cent or 20 per cent of the market. In something like motor insurance, I would prefer to see nobody having more than about 12 per cent of the market because if problems arise in relation to somebody with more than that it can cause major repercussions throughout the entire market in something that is very difficult and sensitive. I faced that problem in the early eighties and it ultimately caused that particular company to go under. It was dealt with under the 1983 Act but it is an expensive way of dealing with it. As far as one can judge by the statements of the administrator and others, it looks as if it will be more or less indefinite, the administrator mentioned a period of ten years before he can get out of the situation. He also said that, for the whole of that ten years, the levy which is paid to him by the customers of every other company will have to continue. That is very unsatisfactory facing into 1992 which will mean freedom of services. Better and more prudent Irish companies are afflicted with these levies because two companies were run imprudently. It was a cruel blow to properly run Irish companies — other than the PMPA and the ICI — who have to collect money to pay to people who are now running these two formerly insolvent companies in competition with the people who are collecting the money. That is a severe handicap and a cruel quirk of fate. It certainly makes it very difficult for those kind of companies to think in terms of overseas markets and trying to resist the pressures that will be on them when freedom of services arrive during the nineties and they are open to full competition from people who do not have to establish here and who do not have to obey the local rules.
The local rules are disadvantageous to companies practising here and to those who may operate in the market from offices or establishments abroad without establishing themselves in this market, as they will be free to do. The kind of disadvantages are the 2 per cent levy which has been brought about as a result of the insolvencies of the PMPA and ICI, the 1 per cent tax on premiums which does not apply anywhere else, the higher rate of corporation tax that applies here to companies and the inability of companies here — unlike their competitors in the Community — to defer liability to tax on profits which are allocated to contingency reserve funds designed to meet prudent solvency levels.
Even though there will soon be a welcome and very marked dropping of the exchange control requirements generally for the movement of capital within the Community — as and from 1 January next — the rule affecting companies about the investment of 80 per cent of their reserves here has not, apparently, been changed or affected by the change in the exchange control regulations. I wonder if that is fair to companies. These reserves are not just supposed to lie there. For many companies, the way in which they have invested their reserves has meant the difference between profit and loss because many of them have been operating for a long time on the basis of an underwriting loss. You cannot put them at an unfair disadvantage vis-à-vis other companies who are making investments. In particular you cannot put them at an unfair disadvantage vis-à-vis other insurance companies within the Community who are not subject to those kinds of restrictions or penalties.
I welcome the Bill even though some of it is of fairly ancient lineage. As I have said, I recognise some of it from six and a half years ago in this House. Nonetheless, all the provisions in it are by and large welcome even though in some cases a different provision might be just as effective but not necessarily better. I would be interested to hear what the Minister has to say in reply to some of the points I have raised and some of the questions I have asked. I wish the Bill a speedy passage. It is important that at least parts of it that are urgent would be enacted into law as soon as possible.
I am glad the Minister, in his introductory statement, outlined the role of the Minister for Industry and Commerce in relation to the insurance industry and action needed to improve the overall environment affecting the Irish insurance market. For a number of years I have received a barrage of complaints from individuals, small firms and trade associations regarding the high cost of insurance. These complaints reflect a mood of anger, bitterness and incomprehension as to why a basic business service such as insurance should have, in a short space of time, become so costly and sometimes so difficult to obtain.
My main concern regarding this Bill and regarding insurance generally is the cost factor and what the consumer has gone through over the years. The abolition by the Government of the use of civil juries in personal injury cases and fatal accident cases in the High Court was a major step in the right direction. I compliment the Minister for Justice and the officials in his Department for their assistance in this regard. In 1986 I spoke in the Seanad on insurance and insurance problems. I will quote from that speech of 16 October 1986:
This realisation and the reforms necessary will not come from the Courts themselves. The Department of Justice, who have the ultimate responsibility for courts administration, must intervene to ensure that changes are brought about including the abolition of the three counsel rule and settlements on the steps.
I am glad this Government have responded in a very positive manner to that request in the interests of the industry and the consumer. When I spoke on that matter in 1986 I continued many of the problems in relation to insurance costs and in many cases the unavailability of insurance cover for many of our small business and firms.
I have gathered statistics in relation to insurance and its availability. I discovered that during the late seventies and the early eighties the increase in employers' liability premiums was on average 280 per cent while inflation over the same period rose by 23.9 per cent. I also discovered that some individual employers experienced increases at that time of between 300 and 400 per cent. These figures came from a survey of FUE members. The Irish Caravan Council stated that the feedback they had received from a representative selection of their members would indicate that the cost of public liability insurance had increased by as much as 400 per cent over a period of three years. The Royal Institute of Architects of Ireland stated that they had experienced an increase of 50 per cent for professional indemnity insurance. Many firms would have experienced an increase of 100 per cent over a two year period. RGDATA stated that premium increases from 200 per cent to 1,000 per cent for property insurance were being experienced by many retailers at that time.
Up to recently, we have experienced a prolonged recession among small firms right across the business. We have witnessed closures and job losses. We have seen small firms fighting for survival in the face of weak markets, intense competition, onerous levels of taxation and increasing commercial rates. These firms also had to cope with massive increases in insurance premiums. The situation had deteriorated to such an extent that many firms could no longer afford adequate cover. I consider this a very serious matter. Thank God we are coming to the end of this recession and there is light at the end of the tunnel. Something had to be done to put insurance on a proper footing.
The result was that this involved implications for the competitiveness of our manufacturing industry. The situation had become so bad that premium rates for employers' liability were 5.5 times higher in this country than in Britain. To my knowledge this claim has not been refuted either by the Department of Industry and Commerce or by the insurance companies themselves. Many small firms were unable to obtain insurance at reasonable costs and this increased the risk inherent in start-ups and, in the case of employers' liability, proved to be a disincentive to increasing employment. We are all fully aware of the lack of jobs in this country. Yet there are difficulties in obtaining employers' liability cover at affordable premium rates and this is a real disincentive to new employment.
However, side by side with this unacceptable situation there is the irony that employers' liability insurance is not compulsory. It is regrettable that only third party insurance is compulsory. Many employers who did not have cover have lost their entire business either through legal action for personal injuries to an employee or, for instance, where a serious fire took place. An employee working in an uninsured or an under-insured firm would be in an extremely vulnerable position in the event of a serious accident. He runs the risk of long term incapacity with the prospect of little or no compensation. We cannot allow this to continue.
In the past year I have witnessed a situation whereby many small farmers who had serious fires in their yards lost their entire stock of hay and did not have any cover at all. On top of that they received a huge bill for fire brigade services, a bill they could not pay. It is a pity the public are not fully aware of the implications of not having adequate cover. However, if people were given the incentive to insure they would do so.
Employers' liability is one form of liability cover. Many small firms in catering and retail have to cope with the growing problem of claims from customers for damages regarding public liability, even in the case of the most trivial of accidents. Professional people have to come to terms with the growing cost of professional indemnity cover. Our manufacturers will have to adopt the provisions of the EC Product Liability Directive which could mean considerably increased cost for this form of cover.
I am fully convinced that we have a crisis in the insurance business. It did not develop overnight and will not be resolved immediately, but I believe we have set out a solution in this Bill to many of the problems. The problem in relation to securing business cover derives, in my opinion, from five main factors behind the massive increase in insurance rates. They are the volume of claims, the level of compensation, the legal system, risk management, crime and vandalism.
There has been a continued increase in the volume of claims and the level of compensation from the late seventies. The average cost per claim in 1984 was approximately £2,000 and that represented an increase over 1979 equal to 1.8 times the rate of inflation; yet while this increase had taken place there was virtually no change in the total numbers of people employed in the country during those years. That is an interesting comparison. In other words, 35 per cent more claims originated in 1983 than in 1979 from a workforce the size of which had remained static. Over that period the legal system had proved to be slow, ineffective and expensive. Legal costs had accounted for 15 per cent to 20 per cent of the total amount paid out by insurance companies in meeting claims. The Courts Act, 1988, we hope will eliminate that cost.
With regard to the poor level of risk management, the general conception, particularly among the insurance companies, is that the management of safety in Irish workplaces is not what it should be and certainly is below European norms. The growth in levels of crime and vandalism has affected particularly the cost of property insurance. While crime and vandalism are mainly urban problems, I have to say we also have our fair share in our villages and towns.
A further factor which has affected the cost of the insurance issue is the way in which the insurance industry has developed over the years. The insurance industry comprises the insurance companies and the brokers. My main concern would be with the insurance companies. It is the companies who accept or decline business who set the premium rates and impose securing and other conditions. The brokers are essentially insurance advisers and the principal channel for placing insurance business. Up to the mid seventies the insurance industry enjoyed a protected home market. The industry comprised Irish home companies who had no interest in spreading their wings in overseas markets and subsidiaries of British companies who had operated here. Crime levels were low at that time and remained fairly static. Inflation levels were low at that time also. Legislation had more or less frozen the number of companies operating in a protected home market. The commercial environment for insurance companies was very cosy indeed.
This very stable way of life was rudely shattered by the passing into law in 1966 of the EC Non-Life Establishment Directive. From that point on, foreign companies already established in other EC countries were allowed set up subsidiaries in Ireland and since 1976 a number of additional foreign companies have set up office here. Then we had several years of cut-throat competition for insurance business between insurance companies who were apparently oblivious of the other changes taking place in the environment for insurance. There were increased levels of crime and vandalism, increasing litigation consciousness and high levels of inflation. The attitude seemed to be to get insurance business at all costs and forget about economic premiums.
This came to an end within the last number of years as insurance companies have been forced to take corrective action in the face of mounting losses. Massive increases in premiums brought severe criticism. In a defensive response to that criticism insurance companies lashed out at everybody else as being responsible for a situation largely of their own making. They had blamed the legal system and Irish firms generally for poor levels of risk management, with some justification, it must be said. However, they seemed to absolve themselves from major responsibility in this area. The panic reaction of the insurers to difficulties being experienced by small firms and business people showed absolutely no regard for the many problems of the firms themselves at a time of recession, very little sensitivity for customer relations and a blinkered view of their own role in the economy. The measures taken by the insurance companies at that time and the manner in which they were being taken reflected an overwhelming concern for their own well-being with no regard whatever for the over-view of the effect of their action on their customer, the economy generally and employment in small firms as a whole.
In fairness to the insurance companies, however, I wish to state that some years ago some steps were taken. I refer to the merger of two representative bodies for insurance companies which became the Irish Insurance Federation. The federation gave full recognition to the problems connected with insurance cover and the consumer. They recognised that the insurance companies in general have a poor overall image and that measures were necessary to improve the situation. It is my wish that in time public representatives will have to listen to fewer complaints from the public regarding the behaviour of insurance companies.
The big question seems to be, who can solve these problems? Who has a role in finding a solution? The insurance companies themselves have an obvious responsibility. The Government also have responsibility. The legal profession have their responsibility. The business themselves and the trade unions also have responsibility in this area.
The measures being taken by this Government in the introduction of this Bill, I hope, will put this industry on a secure footing. More important still, it will protect the consumer who over the years had to carry the can in regard to the high cost of insurance, yet we must remember that the person least responsible for the increased insurance cost was the consumer. Also there is need for a much more safety-conscious approach by management. More and more businesses must be brought to appreciate the simple fact that a reduction in the level of accidents in the work-place is a most effective way of controlling insurance costs. Trade unions need to get a similar message across to their members. If we are to get our business insurance costs down to the level of other countries we must get our standards of managing safety at work up to their levels.
The thrust of this Bill is to get our business insurance costs into line with those of Britain and other countries and to ensure that adequate cover is readily available. To achieve this we should aim for (a) a reduction in the volume and level of claims (b) the establishment of an efficient, expeditious and inexpensive compensation system (c) a safer work-place environment and a reduction in exposure to crime and vandalism. There should be a reduction in the number of speculative claims. It appears to me that there is a lack of balance in the growing number of liability claims. While I accept that levels of risk management are grossly inadequate, I do not believe work-places had become 35 per cent more unsafe in 1983 than they were in 1979, nor do I believe that the risks to public safety generally are any greater now than they were then.
Public liability insurance should be about adequate cover for compensation in respect of genuine injuries and incapacity. Some sections of the public need to be re-educated to this fact. A large section of the business community has lost faith in a court system that is more attached to its own archaic ways than to the notion of giving value for money to the taxpayer. The judgments of the courts must always be seen to be independent of outside pressures. I respect that independence, which is one of the cornerstones of our democracy. However, notions of independence and good efficiency in administration are not incompatible. They are complementery. Therefore, the streamlining of this system under the Courts Act, 1988 was a most welcome innovation by this Government.
Risk management in Ireland is in need of urgent and substantial improvement. At the same time all the legislation, all the regulations, all of the inspections will be of limited use only, unless firms themselves develop a genuine understanding as to why a safe work place is important. There is a major task here for Government, the insurance companies and trade associations.
We have been told that there has been a reduction over the years in the levels of recorded crime. That is welcome news. However, we have daily reminders in our newspapers as to the prevailing high level of crime and vandalism. At the same time we have to face the reality that some risks are becoming uninsurable in certain areas where there is a high level of vandalism. Motor insurance has been an issue over a number of years. There are business aspects to motor insurance and we must never forget this. The high level of increase in motor insurance has led to a situation where many of our young people have been unable to hold or accept jobs due to difficulty in obtaining insurance. The Department of Industry and Commerce should examine the declined cases agreement to ensure that the system operates more effectively than at present.
In conclusion, the Bill clearly demonstrates that the Minister and his Department are fully aware of the problems relating to insurance. This Bill has many technical aspects that I certainly would not be able to deal with, but it will streamline the operation and allow for a degree of sensible competition, at the same time providing protection for the consumer.
We in The Workers' Party welcome this Bill generally. We have some criticisms of it, mainly that it does not go far enough. I am very interested in the comments of Deputy Lynch in regard to public liability insurance, etc. and in the facts and figures he gave. There are few service industries that have produced the level of public dissatisfaction that the insurance industry has produced in recent years. There are very few consumers who believe they are being treated fairly or reasonably by their insurance companies. There is much evidence to suggest that this lack of confidence is well founded, especially in the area of motor insurance, but also in the area of public liability insurance. Everything is fine in an insurance company until they have a claim, and in motor insurance until one has an accident. It is then one discovers the problems.
The situation in regard to motor insurance is particularly unsatisfactory because the cost of premia is so high here in relation to almost any other country. Many drivers simply cannot afford to pay. The result of this of course is not that these people stop driving but that they drive without insurance. This in turn increases the premia to others who do pay their insurance. There have been various suggestions as to the numbers of people who do not pay insurance. Insurance companies themselves put the figure of uninsured drivers between 15 and 25 per cent of drivers but a survey conducted earlier this year by the Garda in co-operation with An Foras Forbartha puts the level considerably lower than that at between 7 and 14 per cent. This would still mean that about 76,000 cars are being driven around our roads without the required level of insurance cover which is an enormous figure when one thinks of it, and that is the lowest estimate. The whole thing seems to be a vicious circle, insurance is so dear that many, particularly young people, cannot afford to pay it. The fact that they do not and drive without insurance pushes up the cost of insurance and makes it even more difficult for people to pay. Lower premia would resolve quite a lot of that and enable people to pay the insurance. Thus, everybody would be covered by insurance and this would reduce the overall cost of premia to everybody.
There is also the question of the attitude of insurance companies towards particular categories in society. The loadings they put on premia often seem to be based on social prejudice at least as much as on statistical data. Young people in particular, even those with clean driving records, have been particularly discriminated against. Some companies have adopted an arrogant and insulting attitude to particular areas of this city. At least one company were in the news recently, the Royal Insurance Company, for deciding that they would not provide motor insurance cover for people living in the Dublin 11 area, a large working class area in this city, although the Garda statistics showed clearly that this area is by no means the worst in the city for car thefts. In fact, the south city area had much higher figures for car thefts than the Dublin 11 area. It was simply a social prejudice on the part of the insurance company that they just wrote off one area of the city and would not provide insurance. This should not be allowed to happen. As far as I can gather, it is the Minister's intention to look into this and to see that such discrimination would not be allowed when motor insurance is compulsory.
There has also been a major problem with regard to public liability insurance. In this area very many voluntary and community organisations in particular are finding it almost impossible to get cover for public functions that they run to raise funds or simply as a social outing for their members. This has meant that many voluntary organisations cannot go ahead with their activities because of the cost of public liability insurance and, in many cases, are tempted to take a risk and go ahead without cover. That is happening frequently in the city and in country areas. I am sure most Members are aware of people who, when running functions, take a chance because of the very high cost of insurance. That is a recipe for disaster and it is only a matter of luck that there have not been major tragedies in cases where there is no public liability insurance cover.
The insurance companies must be blamed for the enormous charges and although that has been pointed out frequently nothing has been done about those charges. The companies have their own prejudices and decide where the highest cover should apply without having any information on which to base that decision. They do not refuse public liability cover but the premiums they quote to firms in certain areas are so high that it amounts to a refusal. As a result certain areas in this and other cities are being run down because businesses are being forced to close thus creating greater problems.
There has been valid criticism of the reaction of the insurance companies to the problem of AIDS. It seems to be a priority of the insurers to protect their own interests rather than provide cover or contribute in some way to a solution of the problem. There are few people who would argue that we do not need improved powers for supervising the operations of the insurance industry, particularly given the fact that two major crises in the financial sector in recent years required Government intervention. Both of them were insurance companies. I am referring to the collapse of the PMPA and of the ICI, and they cost the taxpayers and consumers significant amounts of money. Those collapses came about due to a degree of incredible bungling and mismanagement on the part of their private sector owners. If that had happened in the public sector there would have been an outcry. They would have been quoted time and again by the majority parties of the Right in the House as examples of public sector inefficiency and of the need to privatise them and put them into efficient private sector ownership. There have been so many examples of inefficient private sector ownership that that argument must surely have been shot down by now but people continue to trot it out.
Many questions remain unanswered following the collapse of ICI. We do not know the final cost of the collapse. Estimates have been as high as £1 billion but the direct cost to the taxpayer through the money paid over by the Central Bank was more than £100 million. That amounted to a loss to the Exchequer because had the Central Bank not paid over that money it would have gone to the Exchequer and would have been of benefit to taxpayers. Various attempts were made to pass the buck for the ICI debacle. Suggestions were made that there was inadequate supervision by the UK authorities at the London end of the operation but, whatever the arguments, ultimate responsibility for the supervision of their operations rested with the Department of Industry and Commerce. The fact that ICI were allowed to get into the dreadful state in which they were, clearly points to major shortcomings in the procedures for supervision in the insurance industry. Therefore, the Bill, although coming very late, is welcome.
What annoyed people more than anything else about the ICI collapse was the fact that Allied Irish Banks were allowed to evade their responsibility. Those people, with the aura of expertise and business responsibilities in the banking and financial sectors evaded their responsibilities for the collapse and the State was allowed to, and did, step in at considerable expense to rescue AIB. The funny thing is that had the ICI gamble paid off and AIB had made major profits, as they expected, the State would not have received one penny of the profits but when the gamble failed the State had to pick up the tab for the losses. AIB are still trying to blame their auditors for the ICI collapse but it is hard to see how people who are supposed to be expert in accounting and finance in AIB could be out by so many millions of pounds. It proves what I said at the time, that when it comes to such an event, accountancy is much more of a black art than a science.
If ICI could have been allowed to drift to the extent that their liabilities amounted to hundreds of millions of pounds, despite having their books audited by apparent reputable companies, how many more companies could be in the same position? How can we accept the word of those reputable auditors? In my view it leads the public to suspect that all of this financial mystique, mumbo-jumo, is a cover-up for plain ordinary fraud or, what is known in other circles as plain gangsterism. The ICI collapse came only two years after the appointment of an administrator to the PMPA and that emphasises the need for a comprehensive review of the way in which all financial institutions operate in this State. The days of unbridled licences for the banks and other financial institutions must be brought to an end and if the State is not going to have to move in again and again to sort out financial disasters like ICI it must have adequate powers of supervision. The State must have some say over the appointment of auditors and it should have the power to appoint its own nominees to the boards of those companies. Many of those companies have the right to nominate their nominees to the boards of semi-State companies and to the board of the Central Bank.
It is more than three years since the ICI crisis and this is the first legislative attempt to increase ministerial powers of supervision over insurance companies. The need for comprehensive reform of company law has been emphasised on many occasions and there is in particular a need to give the Central Bank more power to supervise the operations of the banks. I accept that such a Bill is being prepared. We must assume that were it not for EC pressures, and the panic of 1992, the Government would still be sitting on the fence and allowing the cowboy, fly-by-night operators to continue in business, allowing insurance companies to screw the last penny from every widow and pensioner and allowing any clever chancer to get involved in the banking business. That is how the business in the financial, insurance and banking sectors have been run. It is funny that it is just now that panic has set in and that we are promised Bills dealing with banking and insurance to prepare us for 1992. It appears that we are very backward in regard to those matters.
I welcome the increased supervisory powers in the Bill. They are desirable although to a large extent what is in the Bill is merely codifying powers which the Minister has under administrative rules and statutory instruments. The Bill does not go far enough. The general thrust of the Bill is to see supervision in some of the same ways as it has been seen up to now. It is a question of looking at the financial returns, analysing them and seeing if there is cause for concern, and if there is, then all of these actions can take place. That is not good enough because the result of that procedure is that you will always be running behind the trouble and never anticipating it until it is too late and the trouble has occurred. What is required is intervention at an earlier stage rather than a rescue service when it is too late. It is no use intervening after the problem has been identified, that is too late and leaves the possibility of problems similar to those of PMPA and ICI occurring.
I understand that in insurance circles the current rate cutting in the motor insurance market is giving some cause for concern and leading people to think that something similar could happen again in the not too distant future. A more interventionist approach is what is required in the area of supervision. In view of the deregulation taking place in the financial services market and the various changes following EC directives for completion of the internal market, etc. It is important that there should be just one single supervisory authority for the whole financial services sector. There is a whole series of supervisory authorities, for example, the Central Bank, the Department of Finance, the Department of Industry and Commerce, the Registrar of Friendly Societies and so on. The Central Bank should be made responsible for supervising the whole area of financial services including insurance.
With regard to the area of the Bill dealing with the regulation of brokers and agents or insurance intermediaries, I agree that the insurance intermediaries should be regulated and I welcome the fact in this Bill we are talking about regulating them but the concept of regulation in the Bill is flawed. It is a concept of self regulation whereas what is required is statutory regulation. The responsibility for regulating insurance intermediaries rests basically with the insurance undertakings themselves. The Irish Insurance Federation agrees with what I say. I quote from a letter, dated 17 October 1988 which I presume they circulated to every Deputy:
The IIF supports the concept of supervision and regulation of insurance intermediaries but strongly believes that proper supervision is best achieved through an independent statutory body. Insurers will do their best to comply with whatever obligations the Bill imposes upon them, but urge that the Bill should at least contain power to enable the Minister establish, in due course, a statutory system for supervising insurance intermediaries.
On Committee Stage The Workers' Party will be putting down an amendment on those lines calling for statutory regulation of all insurance intermediaries.
Insurance is a vital service in modern society. Motor insurance is compulsory although there is widespread breach of the law. Employers' liability insurance, though not compulsory, should be compulsory. It is a necessity for all employers except some renegade employers. Public liability insurance falls into more or less the same category — it is compulsory and it is a necessity. Also, insurance of property against fire, burglary, theft etc. is a necessity for people nowadays. Marine and aviation insurance too, are all essential. All such forms of insurance are desirable or essential. They are not luxuries, for whatever reason. In the light of this and because of the large sums of money involved, the argument for State insurance is exceptionally strong. The State is already engaged in many areas of insurance, for example, disability benefit, retirement pensions, widows pensions, the VHI, export credit insurance and there are other areas also in which the State is directly engaged in insurance business. Of course, they are forced to take up the slack where the private sector totally failed in the cases of ICI and PMPA. They are now State insurance companies.
The argument for the State becoming heavily involved in the insurance area is powerfully strong and is a logical step in the whole insurance area. This Bill, while welcome, does not go far enough but if the Minister becomes seriously involved in the supervision area it will show very clearly the need for State involvement. Supervision is only the beginning of the involvement of the State in an absolutely essential area of life in the economy.
The last point I would like to make relates to the old cutbacks again. If we are to have an Insurance Bill, such as this, where supervision of the whole insurance business as promised, staff will be required. As I understand it, the whole insurance business has become much more complicated and sophisticated. There are all sorts of EC Directives, etc. so more people are required for that type of supervision. Even during the term of the previous Minister, Deputy Bruton, the whole supervisory section had become depleted due to the public service embargo which has become much worse under the new Government. I would imagine that that area is totally run down in terms of numbers and probably has not got the experienced staff to deal with it. This is an area in which the much maligned accountants and actuaries are the experts whose services would be required if the Minister is to carry out his supervision in this area. I should not like to hear from the Minister that he will have an ineffective Bill because he will not have the staff to implement its provisions, but rather that he is determined to implement its provisions, that he will seek the requisite staff, will hammer the Minister for Finance, the Taoiseach, or whoever, to ensure that when he has the Bill enacted he will have the wherewithal and staff to implement its provisions.
I welcome this Bill for the tightening of controls and supervisory provisions it contains. With the benefit of hindsight one might ponder the possibility that, had these controls been operative and implemented in time, the disasters that occurred in relation to the PMPA and the ICI might have been averted. Had those unfortunate experiences in the industry been averted the country now might be in a better position to avail of whatever marginal benefit might accrue from being in the position of steering away somewhat further from the derogation of full and free competition with our European counterparts. One fallacy being put about in certain areas is that the derogation from the directive on free competition in relation to non-life assurance would constitute a denial of the panacea to the problems occasioned by cheap insurance. While the opening up of our insurance industry to full competition from Europe would reduce premiums in the non-life area significantly, I do not think that move would be an overriding one. We shall have to examine the underlying factors behind the cost of insurance claims, the cost of premiums here and address those problems.
I congratulate the Minister and the Government on the action taken already with regard to the abolition of juries and the also, as yet, non-statutory action in relation to the compilation of a book of quantum, and other action which, in the medium term, will help in controlling the level of claims and their frequency in relation to the abolition of juries in cases where claims might not have been sustained in the past had juries not been trying such cases. In the long run that type of multi-disciplinary action being taken by the Government will help to decrease, little by little, the level of claims, hence the level of premiums. Existing competition between various insurance interests will ensure that the administration costs of insurance companies will be kept at a minimum. Indeed the threat of the ultimate removal of any derogation from free competition within Europe should be another factor in ensuring that insurance companies would keep their costs at a minimum and be preparing for the ultimate opening up of this country to free competition.
We shall have to examine the level of road safety, of safety in industry, in factories where people are asked to undertake tasks when, very often, they are exposed to unreasonable risk of injury. These are areas which require vigilance on the part of Government and both sides of industry, employers and employees alike.
In relation to the general level of claims there is another consideration to be taken into account. Possibly this is occasioned by the fact that we work within a different legal structure from Britain and certainly from that obtaining on mainland Europe. For example, we work within a different structure of court awards from that in Britain while, otherwise, our respective structures may be somewhat similar. When it comes to comparison with mainland Europe we work within a structure different from the point of view of the rules and laws establishing liability and those establishing the quantum of any claim.
When looking, in this multi-disciplinary way, at the task of reducing insurance premiums and general updating of our insurance industry, the Government should devise some means by which the level of claims here could be brought into line with the general or average level of those in Europe by way of a harmonisation procedure which might be initiated here. In this context, given that there is much detailed study necessary in relation to comparative law, and comparative levels of awards in the various other countries of the EC, I might suggest that the Law Reform Commission or some other such suitably qualified body, would be asked by the Minister to examine the position so that the inherent direction of the Irish legal system would not run counter to other such systems delivering awards in countries with which we compete within the EC.
I echo the sentiments expressed by other speakers about the alarming rise in the level of public liability insurance. At some stage legislators will have to examine the alarming propensity of the courts to declare the law of negligence. Here I might add that the areas of liability in negligence have not yet been set. As time goes on it appears that the courts become more and more ingenious, along with the lawyers operating in them, in extending the areas of negligence. One need only look at the way in which the law has changed resulting from court decisions in the area of liability of a local authority in regard to misfeasance in roadworks and their liability arising from misfeasance through the improper execution of roadworks. The courts will contend that the standard now required of a local authority in relation to the construction of a road is that which would apply to a super highway. If there is a pothole, or a pebble out of place — which might be attributed to actual misfeasance on the part of a local authority — now, as a result of a fairly substantial alteration of the law, in turn resulting from court decisions over the past 20 years or so, local authorities are practically automatically liable regardless of the lack of care on the part of the driver of a motor vehicle.
It appears to me that, in instances like these, local authorities really should not be the parties to be insured. They are treated by the courts as insurers themselves in so far as there is developing rapidly a tendency to impose liability on local authorities without testing the possibility of whether any other person, including the driver of a motor vehicle, might be responsible. There is also a tendency on the part of the courts to extend the area of misfeasance into that of non-feasance, an area which traditionally granted an exemption of liability to local authorities. That is an area where the local authorities would be guilty on the basis of doing nothing rather than for doing something negligently.
The cost of bus insurance has been and will continue to be a source of concern. Private bus operators have expressed concern that the cost of insurance is still very prohibitive, the cost of premiums being far above the level which has to be paid by their English competitors. They are in competition with their English counterparts and perhaps this problem might be addressed through the multi-disciplinary approach with which this Bill is associated.
Finally I would like to join with the many other speakers who voiced concern about the difficulty in drawing the line of demarcation as between insurance agents and borkers in the part of the Bill which deals with insurance intermediaries. I would like to see the number of agencies of the agents referred to in the Bill limited to a few in number. I appreciate the practical difficulties in drawing the line of demarcation and in ensuring that a broker will be able to offer the consumer a suitable number of choices in the market.
I will conclude by referring to the claim made by the last speaker that we should have a State insurance industry. Whatever merits there may be in establishing a State insurance industry I would see one overriding demerit and that is that such an industry would eliminate entirely the competitive element and choice for the consumer and the effects which competition would have in keeping the service reasonably priced. While we have suffered in the past from rocketing insurance costs we are now reaping the benefits of the sound private sector approach to the insurance industry led by a Government who are inspired by the need to ensure that there is proper control of and proper direction given to the private sector.
I am glad to have this opportuntiy to be able to speak on this debate on the Insurance Bill which I deem to be very important and necessary legislation in the interests of the consumer. Like every Member of the House, I am deeply concerned about the high cost of insurance in Ireland. It is a heavy burden for motorists to carry, especially young drivers. It is even more serious for employment. Many firms find the cost of employers and public liability insurance prohibitive. It affects their prospects for survival.
There is a number of features in the insurance industry which need to be addressed and which fall into a number of categories such as cost, availability, competition and safe practice. In regard to cost, there are many things which have contributed to the high and escalating cost of insurance in Ireland, for example, uninsured driving. The Motor Insurance Bureau of Ireland pay out approximately £20 million in personal injury claims to the victims of uninsured drivers per annum. It is claimed that up to 20 per cent of drivers are uninsured and this is only part of the cost of uninsured driving. The cost of damage to property has to be met from insurance premiums and apart from this many innocent victims suffer loss with no compensation.
In regard to legal costs, the costs of wrangling over liability absorb 20 per cent of the total claims paid out by insurance companies. In addition, the legal process needs to be rationalised with a view to shortening the litigation process so as to make it less costly. We must recognise that the abolition of jury trials and the limitation on the number of counsel, although necessary, will not provide the complete solution. There is an urgent need for judicial guidelines to be established by the Judiciary in consultation with the medical profession, insurance companies and industry so that the award of damages in personal injury claims would be based on professionally developed actual assessments taking account of the whole range of factors involved. Furthermore, it should be recognised that there is a major role for a more widespread use of safety audits by insurance companies in assessing the accident prevention measures which have been taken by a firm, and to take these fully into account when deciding on the premium. This approach would promote greater adherence to the safety procedures and reduce the cost of insurance for firms which have the highest standards of accident prevention.
Industry has a major role to play in promoting an awareness of safety measures among all employees. High safety standards go hand in hand with high quality production. It is also to be expected that the new Safety, Health and Welfare at Work Bill will promote active safety procedures in the workplace as an integral part in bringing down liability insurance costs.
Vehicle defects caused or contributed to one in 12 motor accidents. The results of an exercise carried out by the Garda Síochána in 1986 over a four day period show that they identified 261 vehicle defects. Of these, 192 drivers carried out the necessary repairs on request. It is also to be noted that the public have become claim conscious. We are told that the frequency of whiplash claims in Ireland exceeds that in the UK several times over.
The uncompetitive state of the insurance industry is also pushing up costs. In regard to compensation levels, court settlements for injuries, as I previously stated, have been very high and indeed higher than in many other countries. The Courts Bill passed earlier this year was supposed to help in this regard. The Government have repeatedly stated that reductions would take place in the cost of premia to the consumer resulting from the enactment of the Courts Bill. The President of the Irish Insurance Federation also stated that savings resulting from this legislation would be passed on to the consumer but I regret to say that there is no firm evidence of such a reduction and indeed the position in some sectors such as the food, drink, tobacco, textiles and clothing industries rather than improving continues to deteriorate. It is my opinion that savings are being made by insurance companies in relation to claims but these savings are not being passed on to the consumer in the form of lower premia. I suggest that it is now time for the Minister to request the Fair Trade Commission to examine this area as a matter of urgency.
The high cost of insurance is placing an intolerable strain on the overheads of many a business and has led to a number of cases to liquidation and job losses. Companies are finding it increasingly difficult in a very competitive environment to absorb these massive charges. In particular I am extremely concerned, as are previous speakers, about the high cost of employers' liability and public liability insurance premia to businesses. Companies are now running the risk of having no insurance at all because of the prohibitive premia being quoted. Companies are often prepared to go into receivership if they get a large claim rather than having to meet the cost of the insurance claim from their own resources. This would confirm the view that the cost of insurance premiums is now preventing job creation and contributing to job losses.
In regard to availability, difficulty in getting insurance at any sort of bearable cost is becoming very common. In some businesses it is virtually impossible for employers to get employers' liability and public liability cover. More and more employers are being forced to operate without insurance. This is a frightening development when one considers the plight of the victims of accidents.
There is no agreement with the insurance industry for dealing with declined cases for employers insurance and this is a major inhibiting factor in job creation. In my constituency of North Tipperary I am aware of a number of proposed projects which have failed to materialise as a result of high insurance costs and in a number of instances they have even failed to get a quotation. Some sectors are finding it increasingly difficult to get adequate insurance cover. These include agricultural engineering, carpentry, woodturning and industries associated with the building trade. Only last week I had experience of a typical example of this when a company who wished to expand and develop had their efforts frustrated because of failure to secure insurance cover for their plans which involved the demolition of an old building to make way for a modern structure. The company received negative responses to their many requests for public liability insurance to cover the demolition work. It is a scandalous state of affairs when this closed shop attitude of insurance companies stifles initiative. There is ample evidence to indicate that insurance companies are selective and over-cautious in relation to their pricing structure and are only interested in low claim risks to the exclusion of many who require insurance. The Minister should make provision in this Bill to oblige all insurance companies go give quotations on all consumer inquiries and insist on the involvement of the Irish Insurance Federation in the creation of a structure and mechanism to provide insurance for the sizeable share of the market that is at presently denied cover on a frequent basis.
Voluntary organisations are also experiencing great difficulty in acquiring insurance cover and far too often many community events are cancelled because of the prohibitive premiums quoted. It is very damaging to community spirit when organisations such as the Gaelic Athletic Association and other sporting organisations, Macra na Feirme, Foróige and local community development associations are frustrated in their attempts to provide additional facilities, entertainment, recreational facilities and the general improvement of amenities in their local areas, especially when one considers that all the personnel in these groups are involved on a voluntary basis. Voluntary effort is being halted and undermined by the profiteering of insurance companies and the Government should take the necessary steps to alleviate and correct the serious deficiencies encountered by voluntary groups in relation to insurance cover.
I am presently dealing with another example of the non-availability of insurance in my area involving the Thurles Tidy Towns Committee. As the House is aware the Department of Justice, in association with the courts, sponsor community service orders whereby criminals are afforded the opportunity to repay their debt to society by way of involvement in community work rather than spending time in prison. Much useful work could be carried out. This could prove very beneficial to the criminal as an individual and the State would not have to meet the estimated £650 which it costs per week to keep a person in prison. It is now evident that community groups who put forward such projects are not able to get public liability cover, thereby rendering this scheme totally ineffective. This is a classic example of a lack of insurance availability curbing Government initiative.
Another area of serious concern to me is the availability and cost of insurance to young drivers. The premiums quoted in many instances are outrageous and often surpass the value of the vehicle involved. To many of these young people a car is essential but because they are not in a financial position to meet these exorbitant charges they often succumb to the temptation to drive without insurance, placing all road users and themselves at great risk in the event of an accident. There can be no doubt that mature and sensible young people are being discriminated against when it comes to insurance cover. I am aware of only one insurance company offering a reasonable deal to first time drivers under 25 years. I urge the Minister to exert his influence to get more insurance companies to quote better terms for this category.
The European Court has ruled that Ireland was acting illegally in the way in which it tried to keep overseas insurers out of certain insurance businesses in this country. This ruling heralds competition from overseas into the Irish market. A move to reduce and improve service to its customers is clearly in the insurance industry's interests. Lack of competition is clearly contributing to the high cost of Irish insurance. The growth in management expenses has averaged over 20 per cent per annum in recent years which is way above the rate of inflation. There is also a huge variation in efficiency within the industry among the large motor insurers. General expenses range from between 8 and 20 per cent of gross premium income. This means that some companies are unprepared for competition and their clients are bearing excessive costs. It can also be stated that the management expenses of insurers in the UK are less than two-thirds of those in Ireland.
Along with improved efficiency there is also a need for better services to the customer. There are many areas for improvement — much more access for the consumer to information about the terms of his policy, the structure of premiums and the level of commission and service charges so that the consumer can shop around freely. There is a need, too, for the preparation of a code of practice for brokers and agents to protect consumers from unfair selling practices. In this regard I welcome the introduction of insurance bonding in Part IV of the Bill. This will afford the consumer better protection in relation to the investments made through an insurance intermediary. However, I must say I am seriously concerned at the ease with which individuals can get an agency with an insurance company with no apparent qualifications or formal training. I am aware of several instances where inflated and unrealistic investment returns are being quoted to gullible consumers. When the policy is cashed, the expectations are not fulfilled and serious questions arise, these whizz-kid salesmen are not to be found. It is not unusual for some companies to change agents and sales personnel several times in a year. This type of approach to insurance sales brings the whole insurance industry business into disrepute and leaves it open to ridicule.
I am aware of the insurance industry's attempts to counteract this in the form of a cooling off period for general insurance and life assurance policyholders, together with the voluntary life offices agreement reached in 1987. However, I believe that all of these agreements will fail to stamp out dubious activities in the insurance sector. It is my considered opinion that the only way to regulate and control insurance agents and brokers is to introduce a system of registration for all.
Under the term "better service to the customer" it is also desirable that insurance practices which unfairly victimise particular groups are removed. For example, disabled drivers still face a 10 per cent loading for which there is no foundation. Even more unjust, victims of untraced drivers receive much lower compensation for personal injuries than victims of uninsured drivers. This practice has no logical foundation either. In summary of the competitive situation, it must be clearly understood and accepted that in the next few years greater competition will be imposed on the industry with the introduction of the EC Freedom of Services Directive. In the interim, it is necessary for the industry themselves to improve efficiency and service.
Something which has recently gained much publicity is the Bank of Ireland subsidiary, Lifetime. It is of serious concern to me and to several insurance firms who have complained to the Irish Insurance Federation that Lifetime are using their privileged and favourable position within the Bank of Ireland group to direct a flood of business towards Lifetime. It is claimed that in some instances the bank's customers are literally being forced to purchase endowment policies from this subsidiary. I am reliably informed that Bank of Ireland managers and senior staff are being offered inducements to direct business to Lifetime. I understand that the Irish Insurance Federation have raised this matter on numerous occasions with the Department of Industry and Commerce but to date have not received a satisfactory response.
It appears that the general insurance industry is not aware of what conditions were attached by the Department of Industry and Commerce to the licence they gave to Lifetime, especially in reation to the behaviour of bank managers in giving business to it. This is a serious charge and in the interests of propriety and in fairness to all concerned it is imperative that the Minister, during the course of this debate, would clarify all issues in relation to this matter.
Finally, I would like to welcome the introduction of this long-awaited Bill. The insurance industry constitutes a crucially important part of the overall financial sector and thrust of the economy as a whole in terms of employment and investment. There are 5,000 people employed in the insurance industry. This Bill has been described as the most important Bill for the insurance industry since the early thirties. I would like to think that the results of the Bill would be of benefit to the policy-holder, the intermediaries, the Government and all who have an interest in bringing the industry forward from strength to strength in the years ahead.
This Bill deals with three problems, being the supervision of insurance companies, the payment of commission to insurers and the regulation of the intermediaries between insurance brokers and others. In relation to the supervision of insurance companies, the insurance industry has not performed very credibly over the last few years. We have had two major collapses where the unfortunate taxpayer had to suffer for the incompetent decisions of two major insurance companies, namely, the PMPA and the ICI. There was a purported Government supervision of these insurance companies in existence well prior to these collapses and it is with regret that I note that both insurance companies are still under administration and still a potential liability to the public purse, this at a time when other insurance companies here are reporting very substantial profits running into millions of pounds.
It seems that the insurance compensation provisions, which are to some extent strengthened by this Bill, are very important and that an insurance compensation fund should be built up to meet these eventualities, rather than insurance companies turning pathetically to the taxpayer when they get themselves into trouble by their mismanagement. This can be done by more stringent controls of the insurance company and their enforcement. One of the problems has been that there is a very slow enforcement procedure which is way behind events and that the public and the Government are not alerted in sufficient time to avert a crisis such as has arisen. One would wonder about the qualifications and expertise of the people involved in the assessment of these claims at all levels. This seems to be the centre of the problem.
The insurance companies now say that because juries have been abolished more certainty will be brought into the claims procedure and I hope it will result in more certainty in the insurance industry, because insurance premiums are now a very real burden on the public, particularly the business people. It is to be hoped that there will be a substantial reduction in premiums as this seems to have been one of the planks on which the insurance industry based their claim that juries should be abolished. The important thing about Part II of this Bill is to see that it is enforced.
Regarding commission for insurers, here one must be careful that the legislation is enforced and enforceable. Commission can be paid in various shapes and forms, as we well know. It would seem that a customer who is a policy-holder should be informed of exactly how much commission is paid to every person who is involved in the transaction, either directly or indirectly, and that information should cover direct or indirect payments and subsidies. This is done very effectively in relation to hire purchase transactions and people realise what exactly they are paying. It is well known that people's assessments seem to fall rapidly with some investments in the insurance world, which is normally explained away by payments of commission at the initial stages. People's anxieties to get tax-free investment often lead them to a path of problems they did not anticipate and deductions of which they were not informed. It is suggested that the Minister, by his regulation, would require insurance companies, on the issue of a policy, to inform the policy-holder of exactly who are being paid and how much they are being paid. Indeed, there might be a cooling off period during which the policy-holder could revoke their investment if they were not satisfied that the matter was just and fair.
Regarding insurance brokers and others, there is classification in this Bill of intermediaries which will limit substantially, the number of brokers or insurance agents. This should be to the general benefit of the public, provided sufficient competition exists between the brokers and intermediaries for the business. This matter should be reviewed in time if competitive rates are not in existence, say, in three to five years time and we do not see a reduction on premiums as promised.
I welcome the keeping of separate bank accounts and the duties on accountants. There appears to be some difficulty of enforcement. Many brokers do not belong to organisations. Many insurance agents are fairly freelance. Are there sufficient personnel available to see that the provisions of the Bill are carried into operation, or are we simply passing legislation that nobody will enforce, in other words, pious platitudes and aspirations? I also wonder if it is advisable to limit the compensation to the public to £100,000. Many of these brokerage firms handle very large sums of money and £100,000 would be small money to them in the event of a liquidation. Why not have a general compensation fund for brokers similar to that for insurance companies, which would be built up something like the solicitors' compensation fund so that it would meet all claims with appropriated money? This is something that the Minister may consider when replying. I say this because brokers are the people who are normally in contact on a day-to-day basis with the older person who is putting away a little money for his old age, or the victim of an accident who is investing his accident compensation. Such decisions and such money are of vital importance to the wellbeing of the customer or the consumer. It seems that such customer should be entitled to a full indemnity in the event of this money being misappropriated.
I welcome this Bill and its general principles, but feel that it could and should be strengthened and could and should be monitored and certainly should be reviewed in due course to see how it is working and being enforced.
I would like first to thank the Deputies who have contributed to this debate. It has been very constructive, indeed. I am happy to note that there has been widespread general support for this legislation. I would like to run through some of the points made. Deputy Bruton referred to the question of amending the Civil Liability (Amendment) Act of 1964 so as to take account of certain payments made under the social welfare code and gratuities or payments from other sources in the determination of a personal injuries claim award, so as to avoid double compensation for victims. I agree generally with the Deputy's proposition on the matter. Adoption of such a proposal would not appear to prejudice the injured party financially as the net amount combined through the recovery of damages by way of legal action and payments from the other sources would equal the total compensation that any other victim not entitled to such payment would receive in any event. This is one of the points listed for consideration by the recent inter-departmental committee on liability insurance costs and I understand the Minister for Justice is examining the whole matter in the context of his proposed reforms of the legal systems generally.
The Government have taken action to improve the operating environment for insurance in the country by the abolition of juries, by encouraging a reduction in legal and other professional costs, by promoting the publication of a book of quantum of damages and by drawing up proposals to implement a system of pretrial procedures to speed up the claims process. We have been taking action on what we view as the priority areas, in an effort to drive down insurance costs. Having said that, however, I can assure the House that I am totally committed to taking any further action that is open to me to improve the insurance environment and reduce premiums and to speed up compensation to victims. The Government have no intention of resting on their laurels and if interested parties come forward with proposals suggesting that more changes or reforms are necessary beyond the action programme already outlined by me, I will be quite happy to take such action, either on my own initiative or in consultation with my colleagues in Government. Some of the ideas put forward in this debate will form the basis of that.
Deputy Bruton also adverted to the possibility of awarding compensation in the form of annuities or periodic payments rather than in the form of a lump sum to those who suffer injury. However, I note that other Deputies disagreed with him on this point. As the insurance supervisory authority, my major concern is, of course, the financial stability and security of non-life insurers. I do not see the issue of periodical payments as one of central importance in the context of the agenda of items requiring action to bring about a real and lasting improvement in the overall environment for insurance. Representatives of non-life insurance companies have expressed concern at the implications of a system of periodic payments for the reserving practices of underwriters and the potential solvency implications which this might pose, in that the uncertainty factor in what is already a less than certain science requires a high level of qualitative judgment on the part of the experts and that claims, if anything, would be increased. In my view, therefore, it is better to concentrate resources on encouraging more competition in the insurance industry, bringing more consistency and reliability to bear on the awards system, reducing legal and other professional costs associated with the claims process, and on grounds of social justice ensuring that victims of accidents receive their compensation as quickly as possible. The implications of any system of periodic payments for the ultimate liabilities of underwriters and the potential consequences for premium levels arising from increased demands due to inflation proofed annuities must not be lost sight of. Insurers would prefer to know and provide as accurately as possible for lump sum payments on foot of compensation to victims rather than having to reserve on an on-going basis for periodical payments with the in-built risk of possible significant increases in future years. However, I am aware that the present work programme of the Law Reform Commission includes a reference to compensation in the form of periodical payments for personal injuries sustained by individuals. I will be prepared to consider the matter further when the Law Reform Commission have completed their deliberations.
Deputy Durkan referred to the so-called compensation mentality which exists in our society today. I would agree with much of what he said. It is the case that far too many people regard insurance companies as fair game and seem to see them as having a bottomless pit from which an endless supply of money can be drawn. Generally there is a view in the country that if the insurance company pay, nobody pays, when in fact the reality is that when the insurance company pay, everybody pays. Unfortunately, the reality is that when the insurance company pay, everybody pays. Unfortunately, the reality is, too, that far too many serious and false insurance claims are still being made. I have already impressed on insurance companies the need for vigilance in detecting and combating try-on claims. The new legal environment should contribute to the tightening up and early detection of these claims.
Deputies referred in the course of the debate to the costs and availability of liability insurance for sporting and recreational facilities and community events. It is unfortunately the case that activities of this nature give rise to a particular risk of injury to and, consequently, claims by members of the public. The cost of claims can only be met by insurance companies if adequate premia are forthcoming to cover the risks involved. It is a straightforward but harsh equation. The cost of claims is still the major input into insurance premia charged by underwriters. We are all too well aware of the high level and cost of claims in the Irish insurance market and the Government's action programme, which I outlined earlier is designed to get this important component element of insurance premia under control. An arrangement exists between my Department and the Irish Insurance Federation to assist in cases where difficulties are experienced by community groups, industrialists and others in obtaining their liability insurance requirements. Before a case can be referred to the federation, it is necessary that at least half the Irish market, including Lloyds, be approached without success. Evidence of these approaches such as a letter from the insurance broker together with a brief synoposis of the risk should be forwarded to the insurance section of my Department, who will refer the case to the federation with a view to providing cover. However, while cover is generally forthcoming, I should emphasise this evening that no guarantee can be given that cover will be provided in every case, but as I have said it is provided in most cases.
Deputies have also mentioned the need for increased awareness of safety in the workplace. I know the Minister for Labour will be introducing legislation shortly to give effect to the main recommendations of the Barrington Commission in this area. With regard to the possible introduction of safety audit arrangements, the Irish Insurance Federation have undertaken a survey of their members to determine policy and resources in the area of risk improvement and surveying. I am aware that the matter is under active consideration between the Irish Insurance Federation and the Department of Labour. As matters stand, a substantial proportion of liability insurers time and resources is devoted to the assessment of surveyors' reports and follow-up work involving policyholders with a view to improving risk management and safety procedures in the workplace. I am fully in favour of the closest possible liaison between insurers and policy holders with a view to improving occupational safety and health. In this context insurers, apart from supplying valuable techncial and practical experience collected over many years, will be particularly concerned to reduce the number of accidents and claims. Once again, prevention is better than cure. I expect the insurance industry to play their full part in the proposed national authority for occupational safety and health which will follow the enactment of the Safety, Health and Welfare at Work Bill. In this context Deputy Foley referred to possible contributions by insurance companies to local authorities in respect of fire prevention services. I should point out that it is already the case that insurance companies, for many years, have been making a substantial contribution to the work of the National Industrial Safety Organisation. Also, the members of the Irish Insurance Federation meet a significant proportion of the operating costs of the newly established National Safety Council which incorporates the Fire Prevention Council, the National Road Safety Association and the Irish Water Safety Council. The Insurance Industry Federation is represented on the board of the National Safety Council. Insurers are providing financial suport and playing their full part in these important areas.
Several Deputies referred to the difficulties experienced by young drivers in obtaining motor insurance. This is an area in which I have taken a particular interest since coming to office.
Cover is always available to the young driver, as a last resort via the declined cases agreement. Under the agreement, the declined cases committee examine cases referred to them by my Department which have been declined by five or more motor insurance companies and nominate one of the companies to quote for the risk involved. Before a case can be submitted to this committee for consideration, it is necessary first to obtain written refusals from five motor insurance companies. These should be forwarded to the insurance section of my Department indicating the order in which they were approached together with details of previous insurance held in the last three years. It should then be possible to have the necessary cover arranged.
Premiums for young drivers are high but so also are the number and cost of claims in this category. In the absence of an improvement in the underlying claims experience, lower insurance rates for young drivers would mean higher rates for other categories of driver but as I will outline later we have been making some progress in this area. More mature drivers have been statistically proven to be safer drivers than their younger counterparts whose rates reflect the higher risk. However, important steps to alleviate the burden on young drivers have been taken recently and are now proving effective.
Following the introduction of the Courts Act, 1988, on 1 August last, members of the Irish Insurance Federation are now offering a 10 per cent to 20 per cent no claims bonus to young drivers taking out their first policies if they have been named drivers on their parents' policies for two years, have a full licence and have been accident free. In addition, a number of insurers have introduced special schemes offering more favourable rates to young drivers. The signs are encouraging and indeed a recent survey carried out by my Department indicated a 13 per cent decrease in premium levels for young drivers in the last 12 months or so.
A number of speakers mentioned the problem of uninsured driving. In this context it is worth recalling that the 1987 survey carried out by the Garda Síochána estimated the level of uninsured driving at between 6 per cent and 8 per cent of all drivers. This is a significantly lower figure than the previous estimate of 20 per cent or more. A number of factors have contributed to this decline, notably the introduction of the insurance disc, more stringent enforcement of the law on uninsured driving by the Garda and heavier penalties for uninsured driving. The introduction of the insurance disc has made the identification of uninsured vehicles easier for the Garda. However, the Government are not complacent with regard to this problem. A 6 per cent to 8 per cent level of insurance evasion still involves about 76,000 uninsured vehicles and represents an average loading of perhaps £30 per insured driver. Thus the Minister for the Environment is proposing to introduce new legislation which will reduce further the level of uninsured driving.
Deputy Cullen commented on the current downward trend on insurance premiums and on the need to ensure that the rates charged do not threaten the future financial stability of the insurers concerned. The Government's objective is to create the environment for lower premiums. However, I am also very conscious of the danger involved if an insurer were to reduce his rates below a financially viable level and I am certainly not advocating that. My Department will continue to keep a close eye on developments in this area to ensure that the interests of the insuring public are protected, both in relation to the cost of their insurance and the solvency of their insurers. The provisions in Part II of the Bill will reinforce this protection for policyholders.
With regard to the comments made by Deputies Dempsey and Foley concerning the provisioning record of non-life insurance companies, I would refer them to my reply of 31 May last to Deputy Dempsey's Dáil Question on the matter when I pointed out that the figures quoted in a magazine article which appeared at that time could be misinterpreted, given that they reflect the gross position on claims, that is, before allowance is made for reinsurance recoveries. Therefore, the increases in the claims provisions referred to do not have a corresponding effect on the companies' net profitability as they are, to a large extent, met by the reinsurers involved. This is particularly so in so far as the more costly third party injury awards and settlements are concerned.
Difficulty in claims reserving in the past can be attributed to a number of factors, which in general either no longer apply or are now being taken into account by insurers. These include high inflation over a number of years, a dramatic increase in claims consciousness and the level of claims awards by juries and other unforeseen factors outside the control of insurers.
I would like to emphasise that my Department exercise supervisory control over insurance companies and pay particular attention to claims reserves. The strengthening of provisions by certain companies in recent years came about following action taken by my Department in their insurance supervisory capacity. My Department have also been instrumental in the increasing use of independent expertise by insurers in recent years to assist them in estimating their claims liability and in advising on the appropriate premiums to be charged.
I am confident that, as well as helping to reduce insurance costs, the Government's programme of measures to improve the overall environment for insurance will also provide a greater degree of certainty for insurers in estimating their future claims liabilities.
Deputy Bruton raised the question of supervision within the different member states of the European Community, particularly in the context of the opening up of the internal market in the 1990s. He was concerned that supervision of insurance in Ireland might be somewhat tougher than in other member states and that this could cause a competitive imbalance in the freer European market of the future. He also asked whether sufficiently rigorous standards of supervision would be applied uniformly throughout the European Community to avoid what he termed the dangers of competitive laxity of supervision. I will attempt to allay the Deputy's fears in relation to supervision in both the Irish and European contexts.
The purpose of insurance supervision is the protection of policyholders. The basic duty of the Department of Industry and Commerce in Ireland, in common with the supervisory authorities of the other member states, in relation to insurance companies is the supervision of insurers to insure that they are solvent and to take the necessary measures to improve matters if they perceive any potential solvency difficulties. I would stress that the basic supervisory procedures have already been harmonised throughout the European Community following the various directives which have been adopted in relation to both the life and non-life insurance sectors.
Nevertheless, within this basic framework, there are certain member states which are highly regulated and others which are perceived as being more liberal. The thrust of insurance supervision in Ireland can best be summarised by saying that fundamentally insurers are told what they may not do, as opposed to being required to obtain specific approval for what they may wish to do. In the Irish context, intervention in the affairs of the insurance industry is intended to assist in maintaining the security, profitability and efficiency of the business in the interests of policyholders; it is not intended to be unnecessarily inhibiting or restricting on the sector. The provisions of the Insurance Bill have been framed against this general background and it is significant that the provisions have been welcomed by all sectors of the insurance industry here. While we are careful not to cut any corners in the insurance supervisory process, we are also very much aware of the need to maintain the normal commercial freedoms within which insurers can operate.
In the context of the completion of the internal market and increased provision of insurance services across national frontiers, it is important to remember that all member states are particularly conscious of the need to supplement existing directives in order, particularly, to clarify the powers and means of supervision vested in the various supervisory authorities and because it is also eminently desirable to lay down common specific provisions regarding the taking up, pursuit and supervision of activity by way of freedom to provide insurance services. Indeed, this is the course already followed by the recently adopted Non-life Insurance Services Directive and further directives in the insurance area will maintain this course.
Deputy Bruton asserted that the requirement to localise assets in Ireland representing technical reserves of insurers on Irish business could cause competitive distortions which would harm the prospects of Irish insurers competing with their European Community counterparts. At present the Irish regulations stipulate that, generally speaking, insurance undertakings must localise assets in the State equal to at least 80 per cent of technical reserves. With the competitive factor mentioned by Deputy Bruton very much in mind, my Department have recently concluded an examination of the position in other member states and the results of this study show that, if anything, our requirements are liberal by comparison with other countries where, in the main, a 100 per cent domestic localisation of assets representing the technical reserves is required.
Some Deputies questioned the need for transitional arrangements in the context of the recently adopted Non-Life Insurance Services Directive, and inferred that there is a lack of competition in the Irish non-life insurance market. I will take the second point first. All players in the market agree that there has been a significant increase in competition in the Irish non-life insurance market since freedom of establishment by insurers was allowed in 1976. Since then, 17 new entrants have established in the Irish insurance market, most of whom are competing actively for business. Indeed, Deputy Cullen in the course of this debate represented that in his view there was excessive competition in certain sectors of the non-life industry in Ireland at present.
As to the transitional arrangements negotiated for Ireland, the particular problems associated with the non-life insurance industry in recent years are widely recognised, with two of our largest insurers technically insolvent and under a process of public administration with State support and public financing mechanisms to resolve their difficulties.
The action of the Government in securing extra breathing space for the Irish non-life industry is totally consistent with the approach of the previous Government, in which Deputy Bruton was Minister for Industry and Commerce, which included a unilateral declaration in the Single European Act, 1986, to cater for the special position of the non-life industry in Ireland.
The deadline for initial implementation of the services Directive for all member states, including Ireland, is 1 July 1990. The full entry into force of the Directive is staggered for everybody. In the case of eight of the member states, the quantitative thresholds will be set initially at higher levels and will reduce to the basic fourth company law thresholds of 250 employees from 1 January 1993. In the case of Ireland, Spain, Portugal and Greece, we have been given the facility to apply higher initial thresholds, in Ireland's case until the end of 1998.
From 1 January 1999 the basic quantitative thresholds will apply in Ireland. Nevertheless, it is important to remember that the Irish non-life insurance industry will begin to open up to services competition from 1 January 1993 and will be faced with gradually increasing competition throughout the nineties as we move closer to these basic thresholds. Of course, the Government always reserve the right to speed up the process between now and those dates.
The transitional period negotiated for Ireland ties in with the broad timescale for the recovery of the PMPA to normal trading. In any event, the arrangements are optional in nature and the phasing-in process, as I pointed out earlier, can be speeded up by the Government, if necessary, in the light of improving circumstances in the nineties. It is quite sensible to negotiate the derogation, as not to have done so would have had implications for the administration of the PMPA and ICI, employment levels and for the premiums payable by most policyholders who do not fall into the large industrial and commercial risk categories covered by the services Directive. I, therefore, reject the criticism which suggested that we should not have negotiated this breathing space. Clearly, if it is examined objectively, one must agree that it was the sensible course of action.
I would stress that this Government are not "derogation-minded". Because of our interest in the completion of the internal market on schedule, we have only sought derogation where we are convinced that there are exceptional problems which require special treatment for a temporary period. This is obviously the case in non-life insurance.
I have impressed on the Irish non-life insurance industry the need to prepare itself for the impact of open and free competition in insurance. It is essential to improve efficiencies and get costs down and whatever rationalisation or reorganisation is necessary must now be undertaken by the industry in the intervening years.
Even in a services context, the overall claims environment and claims costs in Ireland will continue to be the major determinants of premium rating levles. This is why the Government are taking determined action to bring about real cost-reducing changes in this whole area. Cost reductions will benefit all policyholders and not just those who can avail of freedom of services.
I would take issue with Deputy Bruton's assertion that the present 1992 "European" awareness campaign is, in his words, manufacturing obsessed and that the whole financial services area, including insurance, is being ignored by Government. The facts plainly show otherwise. I have in recent weeks chaired regional seminars in the main centres of population around the country to spell out the implications of the completion of the internal market for all sectors of the business community in Ireland. I have been accompanied to these seminars by an assistant secretary and a principal officer from my Department who are responsible for the International Financial Services Centre and the insurance sector, respectively. Their attendance at the various seminars is specifically to deal with questions on the opportunities and challanges in the financial services sector arising from 1992. Furthermore, many of the European information leaflets deal specifically with financial services topics such as banking and mortgage credit, insurance, exchange controls and capital movements.
I have noted the comments of Deputies in relation to the charging of fees under section 7 of the Bill. I will bear these and the views of all interested parties in mind when considering a fee structure which I intend to be fair and reasonable and supervised. I am aware that in other jurisdictions, including the United Kingdom, fees have been linked to premium income on a sliding scale basis. As to Deputy Cullen's point that fee harmonisation throughout the European Community would be a useful exercise, I would simply observe that the fees in any jurisdiction would not be at a level which could distort competition between insurers in the different member states. For example, in the case of the United Kindgom the total annual fee for an undertaking with gross premiums in excess of ST£1.5 million is set around £5,000 at present. This is hardly a competitive factor in the context of the internal market in Europe.
Deputy Bruton inquired about section 19 of the Bill, specifically subsection (3) dealing with the display of policy terms and premium rates, as to who would police the provisions in relation to the display of the requisite information. I would point out first of all that section 19 as framed is a reserve power to be invoked only where warranted by specific circumstances. To date, my Department have received very few complaints from consumers expressing concern at a lack of full or fair information from insurers on premium levels or policy conditions. Nevertheless, the opportunity is being availed of in the Bill of providing power to the Minister to require the display of such information. We all agree that it is desirable in the consumers' interest that insurers should provide meaningful information to clients on what is to be covered by a particular insurance policy, how much it costs, what no claims bonuses provisions apply and so on.
If orders are brought in at any stage in the future which oblige insurers to display certain information in relation to their policies, I have no doubt that underwriters will accept and discharge these requirements to the full. As is normal practice, the Department would consult fully with insurance interests before any display order would be made. The making of a display order would be publicised and the general public would obviously expect insurers to comply with the legal requirements.
In addition, staff in the insurance section of my Department would, in the normal course of their duties, carry out periodic checks and I can assure the Deputy that no staffing implications are foreseen in this respect.
Deputies also raised the question of the criteria to be used in assessing the qualifications of directors and managers of insurers. The purpose of section 20 is to enable the Minister to assess on an ongoing basis the quality of insurance company management in the interests of both shareholders and policyholders. I do not consider it desirable to lay down a list of specific criteria for assessing the suitability of directors and managers because there is always the danger that such a list might not be comprehensive enough to deal with all cases that may arise. In deciding on the suitability of directors, managers and authorised agents I will, of course, take into account a person's track record by reference to previous business experience, competence, qualifications and expertise in the insurance and financial areas. Deputy Bruton stated that it seemed to him that there were all types of possibilities for extremely subjective judgments by the Minister and that those judgments would not be open to question by anybody. I can assure the House that the powers will be exercised judiciously where necessary or desirable in order for the Minister to satisfy himself as to the capacity of those directing insurers' business. I would draw attention to the avenue for appeal under section 20 (7), which allows an insurance undertaking to appeal to the High Court in the event of an objection of the Minister to any individual. It should also be pointed out that such an appeal procedure may be heard in Chambers so as not to damage the interests of the insurer concerned. Again I would make the point that any Minister for Industry and Commerce would have to exercise care and apply considered judgment before proceeding down this avenue. At the end of the day, the Minister must act reasonably in relation to insurers supervised by him.
Deputies Foley and Dempsey raised the question of commission payments. The reason powers in Part III are being taken at all is to enable me to curb excessive commissions should the need arise. They are, in effect, maximum price control powers.
On the non-life side, some brokers would argue that commission levels are too low for certain classes and that these were reduced by insurers. Insurers on the other hand would point out that these commissions are calculated on a percentage of gross premiums basis and that, generally speaking, over the last decade or so increases in liability, in motor rates in particular, have far outstripped the level of general inflation. Indeed that is why the Government have taken action overall in the package to which I referred earlier to reduce the cost of insurance to the public. As I said earlier, this is now beginning to take effect.
Deputies will already be aware that the powers to control commission levels are reserving powers to be activated if self-regulation by the industry fails and consumer interests are eroded by excessive commission payments. The powers are very much in the nature of controls on maximum levels of commission payments. My primary concern in this has to be the consumer. Free holidays in exotic locations and that type of nonsense at the expense of consumers simply will not be allowed. I will expect that all sectors of the industry regulate their affairs in a reasonable manner. However, it is not the intention that the Minister should interfere with responsible market forces or the normal commercial interplay between intermediaries and insurers. I will not act as a form of pay arbitrater for insurers and their intermediaries. This, in my view, is a function of insurance company management on the one hand and the intermediaries and their representative bodies on the other.
Deputy Durkan referred to the manner in which life assurance policies are sold. There are certain occasions when, because of the hard-sell attitude of certain unscrupulous sales people, a portion of life assurance business is taken on which simply ought not to have been taken on.
I hesitate to interrupt the Minister of State but I am bound to say that the time has come to deal with the Adjournment debate.
Has the Minister concluded?
The Minister has concluded.
I have not concluded. I would like to conclude when we resume the debate.
Debate adjourned.