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Dáil Éireann debate -
Wednesday, 22 Feb 1989

Vol. 387 No. 5

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

I am putting the question, as I am required to, "that the amendments set down by the Minister for Industry and Commerce to Chapter I, Part I of the Bill and which are not disposed of are hereby made to the Bill, and in respect of each of the sections not disposed of in the same Part, other than section 7, that the sections or as appropriate, the sections, as amended, are hereby agreed to."

Question put and agreed to.
Section 11 agreed to.
SECTION 12.

I move amendment No. 15:

In page 8, paragrtaph (f), line 39, to delete ", forms and fees" and substitute "and forms".

This technical matter relating to the charging of a fee for the issue of a solvency certificate is removed by this amendment from section 12. It has been included in section 7 by an amendment to that section designed to include all references to fees in the one section.

Amendment agreed to.

I move amendment No. 16:

In page 9, lines 1 and 2, to delete paragraph (h).

I do not understand why the Minister would need to make regulations in respect of the percentage of distributed surplus allocated to policyholders. Perhaps the Minister could explain?

The Minister may wish to make regulations putting a figure on what surplus may be distributed to policyholders. There is an enabling power in this section for the Minister to lay down regulations governing the distribution of surplus. This measure is designed to protect policyholders in that the Minister could ask to be notified if a reduced allocation or no allocation was to be made. Either of those actions could indicate that an undertaking was experiencing some financial difficulty or perhaps the manipulation of funds in favour of distribution to policyholders or away from them. The Deputy will agree that such enabling powers are desirable. The Deputy is probably aware that they are covered in some detail in UK legislation. For these reasons it is wiser to leave that enabling power there in relation to the question of the overall percentage of the distributed surplus which would be allocated to policyholders.

In what circumstances would a distributed surplus be allocated to policyholders? If there is a genuine distributable surplus, does that not suggest that the company could not be in financial difficulty?

I do not readily have a set of circumstances to give the Deputy, but it is no excess baggage to have that enabling regulation in relation to the surplus which goes to policyholders as opposed to the surplus which might be available for shareholders. It is in that area that I imagine a Minister might wish to make regulations.

I do not understand this. We should know what the Minister wants the power for. In the normal course of events policyholders are not affected by whether the company is making a profit. They are paid in respect of claims made which relate to events covered by the policy. It is not a matter of any consequence to them whether there is a surplus. The only time it would be relevant is in the case of this unusual category of life assurance policy, known as a with-profits policy, which is something Irish Life still have some of. It is not very common, but if that is the case, perhaps the Minister would indicate that it is. If it is the case I still do not understand why the Minister has to make regulations about it, because if the company has a surplus it would appear to be financially sound and if it does not have a surplus, this will not arise, and it can only have a surplus on the basis of accounts that have been agreed by the Minister.

The Minister already has powers to regulate what may and may not go into the accounts or how the accounts may be prepared. One assumes that it is a genuine surplus and if it is, the company is in sound circumstances. If that is so, I do not see why the Minister must make regulations about how much or how little should be distributed to policyholders. It looks as if the Government want to have the power to act as a sort of nanny for insurance companies in regard to how much they should give out on particular policies. The Minister and his officials have plenty to do without making regulations about that sort of thing.

We are trying to ensure that policyholders are protected, and that, for example, the shareholder would not necessarily gain perhaps at the expense of the policyholder.

In what circumstances?

I do not want to speculate too much in this area. The Deputy will be aware that where a surplus would be available, the company can decide what percentage would go to policyholders. Normally this would relate to a with-profits policy. The company can decide what percentage of that surplus to allocate to with-profit policies and this paragraph will ensure that that percentage is adequate.

That is surely a matter for the people taking out the policies. They should work that out for themselves in the first place and get assurances on how the profits will be distributed. It is not a matter for the Government.

In the UK legislation, for example, there is a requirement for a company to notify the Minister if this amount varies by a certain percentage.

This is just a matter of interest. The idea is to ensure that the shareholder does not unnecessarily or exceptionally gain at the expense of the policyholders. I believe this is a sensible approach.

This is a matter of normal commercial judgment. When someone takes out a with-profit policy it is up to them to protect themselves by ensuring that the policy contains adequate assurances as to how the profits will be determined and distributed. If the small print of a policy does not give adequate assurances on that point people should not take out the policy. They should take out some other type of life assurance policy which is not related to profits but to some other index of performance or whatever of the investments. I do not think the Government should get involved in regulating this area. This is an arms length transaction between two people and nobody is forcing those people to take out a life assurance policy. Presumably they are adults capable of making their own decisions and just because the British have done it is no reason why we should take the power to regulate the proportion which should be given. It seems to be throwing in more work and more activity for the Department of Industry and Commerce in this area when the world knows that the Department of Industry and Commerce have plenty on their plate in regulating the solvency of these companies without having to regulate commercial relations between people who have entered freely into those relations.

Did I understand the Minister to say that if the surplus being distributed to the policyholders was too large that he could interfere in those circumstances as well and, if so, what circumstances?

It is important that we are clear on this point. This provision will give the Minister power to make regulations to effectively prevent abuse. When people take out with-profit insurance policies they do not know in advance what the bonus element on those policies will be. I do not think it is good enough for Deputy Bruton to say "Let the buyer beware", as it were, because the policies will not say what surplus may be earned by the company.

It is a maximum investment.

It will not say what bonus a person may earn. It will say that it is a with-profit——

A person can determine a percentage.

It does not give a percentage.

But it could.

When somebody buys an insurance policy it does not give a predetermined percentage.

Then they should not buy it.

What I am trying to do in this paragraph is ensure that if there is a substantial surplus the policyholders get their fair share of it and the Minister would only use this power if this was being abused. The UK legislation is interesting and we are not blindly aping it. I have some experience in this area. In the UK the requirement is that if the bonus decreases by a certain percentage, then the supervisory authority must be notified because one cannot get these assurances in advance. Arguably an insurance company would have a very substantial surplus. If someone takes out a with-profit life assurance policy with a company who have a major surplus but they only distribute 2 per cent of the surplus, are we to stand back and say those policyholders knew what they were doing? Their policies said they would get a bonus and even though their investment may have earned a fund of a couple of million pounds they may only get 1 per cent, 2 per cent or 3 per cent of it. The intention behind the UK legislation — and it is the clear intention behind this paragraph — is to ensure that policyholders are not abused.

If companies did that nobody would buy their policies.

They will already have bought the policies at that stage and it will be too late.

The insurance companies will give themselves a bad name and nobody will buy their policies. There is no need for the Minister to get involved.

That is like saying we should have no legislation because if companies misbehave they will get a bad name.

We do not need legislation on this.

It is like saying if companies misbehave no one will do business with them, so we should have no legislation at all.

This is not companies misbehaving; it is people being commercially stupid.

Is the Minister saying that if he believes the surplus being distributed to policyholders is too large at the expense of the shareholders — and that could be based on a commercial decision within the company to boost that end of their business — he wants to interfere in that area? Obviously the Minister has some reason for including this paragraph but he does not seem to be telling us exactly what it is.

The Deputy made his point well. We are not interested in interfering with commercial practices but if a surplus is earned which belongs to the policyholders, which surplus they were substantially promised when they signed the policy, we want to ensure that the surplus is distributed to them. I do not think Deputy Bruton was quite right in what he said; no self-respecting insurance company would sell with-profit policies and, if they have a surplus, not give those profits to the policyholders to a substantial degree. We do not want to control surpluses but we want to ensure that policyholders are not shortchanged.

Can the Minister not also take the opposite view? If the Minister believes that the surplus being distributed to policyholders is in some way too large and against the interests of the shareholders. Can he also interfere in that case? Is that what the Minister is saying and, if not, will be explain the position to me?

Of course he can.

The Deputy is talking about the Minister making regulations. Under insurance legislation an insurance company have full power to distribute their surplus to their policyholders and this provision is to ensure that they get their fair share of that fund, in other words, to ensure that they do not get less than is reasonable.

Or too much.

I must again remind the House of the legislation in the UK jurisdiction, which I think is very sensible, and which provides that if the bonus decreases this year over last year the supervisory authority must be notified. It is a red light to the supervisory authority and ensures that companies which earn substantial surpluses which belong to policyholders and are committed to them in their with-profit policies make these surpluses available to policyholders. That is the clear intention behind this paragraph.

I want to put it to the Minister another way. Supposing serious competition breaks out between a number of companies in the life area and the way they promote their campaign is to over-allocate the surplus to the policyholders, is the Minister saying that he can interfere in that sense and say "No, this is unfair to the shareholders"?

The main intention behind this provision is to prevent abuse. In a most extreme and unlikely commercial situation where say, a company sat down and decided they would give the policyholders much more than they were entitled to or deserved, there might be circumstances in that regard which could threaten the solvency of the company.

How could it if there was a surplus?

The company have to allow for reserves out of surpluses. One cannot give out all the surpluses; one has to put something in reserve and as the Deputies know under insurance legislation reserving is what the game is all about.

Is it not a surplus after reserving?

No, I am talking about the distributed surplus. If a company distribute all their surplus they will not have a reserve and there might be a most unlikely circumstance where a company decide to give out 100 per cent of their surplus and leave nothing in reserve. This might threaten the solvency of the company and the Minister could use section 12 (h) in those circumstances. There is nothing sinister about that section; it is to ensure that there is no abuse of the policyholders and no danger to solvency.

I believe the Minister has plenty to do in looking after the solvency of companies without getting involved in making rules about the distribution of surpluses. I have heard many cases being made that the Department of Industry and Commerce are understaffed and do not have enough people to deal with supervision, yet here they are taking on additional powers which truthfully they do not need to take on, as far as I can see from the debate which has taken place so far with the Minister. The fact that the British have taken action along these lines does not mean very much because they have much larger resources for supervision of insurance companies than we have. They have not, perhaps, had as many substantial collapses of insurance companies, either. Perhaps they can afford to become involved in all sorts of esoteric matters like setting out the appropriate distribution of a surplus as between policyholders and shareholders. To my mind, the Irish insurance supervision authorities should stick to what really is important, without taking on such powers as these.

Acting Chairman

Is Deputy Bruton pushing his amendment?

I am pushing it to the utmost.

Question: "That the words proposed to be deleted stand" put and agreed to.
Amendment declared lost.

I am doing my best to educate them, not with complete success, though.

I move amendment No. 17:

In page 9, between lines 2 and 3, to insert the following:

"(i) the use of uniform accounting periods by insurers to assist in the comparison of the performance of insurers.".

I am not sure if this amendment is necessary. However, it seems that the Minister should have a regulation-making power to allow him to require all insurance companies to present accounts for the same accounting period on a uniform basis, to allow ease of comparison between the accounts of various insurance companies. If one company's accounting year ends on 31 December, another's on 5 April and another's on 30 September, it is not easy to compare their performances. It may be that the Minister already has this power or that accounts, for all I know, are presented on the same basis. If they are not and if the Minister has not the power, it is reasonable that he should have it and I am proposing this in amendment No. 17.

In both the life and non-life sectors, only a small number of undertakings have different account ending years from December 31. This arises principally because those companies are subsidiaries or branches of overseas companies and, in general, the dates are chosen for consolidated accounts purposes. Such a small number of exceptions is not likely to lead to problems with comparison of performance. I see what the Deputy is trying to do and certainly it is something we can discuss with the industry. I am quite happy to bring it to their attention.

There is another aspect. There is merit in this proposal. In other parts of the Bill, for instance in section 46, there are historical references to the previous accounting year for the implementation of other aspects of the Bill. If there are different accounting year endings, that makes things obviously much more difficult. I am thinking particularly about section 46 subsection (2) (b). If you want to make changes, the different accounting year endings will make it much more cumbersome administratively.

I know what the Deputy is trying to do and it is a good idea in many ways to try to tidy things up. Companies, in many cases, have their own year endings. We can do many comparisons without necessarily bringing them all to the one date. As I said, there is only a small number of insurance undertakings that have different year endings.

The Minister has already said he is prepared to discuss this matter. This amendment is merely giving him the power to do this; it does not require him to introduce regulations of this kind. It may be that the Minister, having discussed the matter with the companies, will decide to leave things as they are. If that happens, he just does not use the power. I am quite prepared to accept that, if that is his decision. On the other hand, I would not be very happy that the Minister would come to a conclusion that there should be a uniform accounting period and then find that he can do nothing about introducing such a regulation and would have to accept the companies continuing with their different accounting periods. I would urge the Minister to accept the amendment but to keep an open mind as to whether he is going to make use of it.

I appreciate very much the spirit of the Deputy's amendment. I have, however, two difficulties in terms of its inclusion. First, nowhere to my knowledge in company legislation elsewhere do we, or could we, impose on an industry a common year end date. Take the banking side of the manufacturing area. For the sake of neatness and comparison we could not impose on the industry at any stage that particular requirement. It would be a difficult imposition on industry.

My second area of difficulty relates to the fact that this is not just a domestic situation. In this industry, in particular, there are many international companies operating. These companies have gone to great trouble to consolidate their accounts and they have branches all over the world. The Deputy is asking me to take the power in any case and see whether it can be used. That might be unwise. A wiser course of action might be to discuss the matter with the insurance companies in the first instance. I do not see much point in putting something into the regulations which would, perhaps, turn out to be impossible to use.

The Minister has just insisted on keeping paragraph (h) of the regulations and never mentioned in the course of the debate that he would ever use it.

I could use it.

You could use this regulation, too; perhaps you might not use it but I do not think that is a very good argument. I shall come back to this when speaking on the section because I want to ask the Minister, if it is his argument that he must use every power he has. To my mind that is not the case. We will discover, when we get to the debate on the section, that the Minister has not used many of these powers and they are simply there as a facilitative measure. I do not see anything wrong with facilitating the Minister in the matter of requiring a uniform accounting period. He does not have to enforce it, but it is no harm that he should have the power to do it if necessary. I urge on the Minister to accept the amendment. It cannot do any harm; it can only do good. The Minister retains complete discretion not to use the power if he deems that there is even the slightest danger that its use could do harm. This amendment is very reasonable in that context.

I have accepted the object of the amendment as reasonable and have undertaken to try to work with the insurance companies to bring about a uniform accounting period approach. I could not see our using a regulation which imposes on an industry a requirement to do all their accounts at the same year's end. That would not be tolerated in the manufacturing industry, for example. It would not be tolerated in the banking industry. The Deputy would probably be on his feet telling me that it was an unnecessary intrusion.

No, this is with regard to the supervision authorities, the need for uniformity.

If we use that regulation we are ultimately imposing a requirement on the industry to have a particular year end date. I do not think that we would get away with that in any industry. It is not something that one should lay on industry by legislation. However, I shall work with the industry and bring this matter to their attention to see if we can bring them to as common a position as possible. I am again emphasising that it is only a small number of companies that have different year ends from 31 December. The vast majority of undertakings have that date.

Progress reported; Committee to sit again.
Sitting suspended at 1.30 p.m. and resumed at 2.30 p.m.
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