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Dáil Éireann debate -
Thursday, 2 Mar 2000

Vol. 515 No. 5

Insurance Bill, 1999: Second Stage.

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

Is cúis áthas domsa bheith anseo chun an Bille Árachais seo a chur faoi bhrád an Teach. Tá mé ag súil go mbeidh spéis mór ag Teachtaí go léir agus go mbeidh an spéis chéanna sa Seanad nuair a bheidh sé ansin.

The objectives of the Insurance Bill, 1999, are to allocate regulatory responsibility for insurance intermediaries to the Central Bank of Ireland and to utilise the regulatory powers available to the Bank under the Investment Intermediaries Act, 1995, to enable the Minister to make disclosure regulations to require both insurance undertakings and intermediaries to make relevant information of a specified nature available to insurance consumers; to strengthen the existing system of notification by reinsurance undertakings and to enable the Minister to make regulations for the authorisation and supervision of reinsurance undertakings, and to update existing provisions for offences and penalties and to enhance the powers of "Authorised Officers" for the purposes of the Insurance Acts and regulations.

It might help the House if I were to summarise briefly the general background to the proposals contained in the Bill. I will then proceed to explain in more detail the content of some of the more complex provisions for the benefit of the House.

Insurance undertakings employ almost 10,500 people in Ireland today. In addition, there are approximately 6,500 insurance brokers, agents and tied insurance agents, many of whom are employers of staff. Gross insurance premium income for 1998 amounted to £7.5 billion, of which 66% related to life assurance and the remaining 34% to non-life. Gross premium income increased in 1998 by 36% on the previous year's figure.

In round figures, there are 1,900 insurance brokers, 1,500 insurance agents and 3,200 tied agents, as well as the sales forces of the undertakings themselves, involved in the sale of insurance products. Of life assurance business, 50% of annual premium is transacted by brokers, 2% by agents, 22% by tied agents, 25% by company sales forces and 1% is effected directly with the insurance undertaking. Where single premium is concerned, brokers transact 75% of insurance business, agents 1%, tied agents 15% and 9% of the business goes directly to the undertakings.

On the non-life side, the insurance industry has advised me that approximately 70% of this business is transacted by intermediaries. Some 55% of non-life business is accounted for by motor insurance, of which approximately one third is transacted directly with the insurers by phone, tax or over the Internet. The percentage of direct insurance has been increasing significantly in recent years, with several new companies specialising in this format of business.

Provision for the regulation of insurance intermediaries was first introduced into law by Part IV of the Insurance Act, 1989. This provided for a relatively simple system of self-regulation by the insurance industry itself, under the overall responsibility of the Department of Enterprise, Trade and Employment.

The 1989 Act defined three separate categories of insurance intermediary. First, the insurance broker, who acts primarily as an agent of the client and must hold appointments from at least five life companies to transact life assurance business and-or from at least five non-life companies to transact non-life business. Second, the insurance agent, who acts as an agent of the insurance company and who may not hold more than four appointments from life companies to transact life business and-or no more than four non-life companies to transact non-life business. Third, the tied insurance agent, who enters into an arrangement with a particular insurance undertaking, whereby he or she undertakes to refer all proposals of insurance of a particular form, that is, life or non-life, to that undertaking. The insurance undertaking concerned is responsible for any act or omission of its tied insurance agent in respect of any matter pertaining to a contract of insurance offered or issued by that undertaking, as if the tied agent were an employee of that undertaking.

A notable feature of the retail insurance industry is the overlap between brokers and agents, with many individuals or firms acting as brokers for one form of insurance business and as agents or tied agents for the other form.

The Irish Brokers Association, IBA, as a body recognised by the Minister for the purposes of the Insurance Act, undertook supervision of its members' compliance with the Insurance Act, while the Insurance Intermediaries Compliance Bureau, IICB, was established by the Irish Insurance Federation, IIF, as a central compliance checking facility for all other insurance intermediaries. In addition, a major regulatory function fell to the insurance undertakings themselves, in that they may not appoint a person to market their products or pay commission other than to an intermediary who is either a member of a representative body of insurance brokers, recognised by the Minister, whose rules require compliance with the Insurance Act, or a person who otherwise complies with the provisions of the 1989 Act.

The Investment Intermediaries Act, 1995, introduced detailed procedures for the regulation of investment intermediaries, with regulatory responsibility allocated to the Central Bank and the Minister for Enterprise, Trade and Employment. Under the Central Bank Act, 1997, the supervisory role allocated to the Minister in respect of certain categories of investment intermediaries was transferred to the Central Bank, with effect from April 1997.

In recent times, there has been considerable blurring at the margins of investment and insurance products, and a significant number of intermediaries have been engaging in both investment and insurance business for some time.

The Central Bank is well equipped with a robust regime of regulatory and enforcement powers under the 1995 Act to supervise investment intermediaries and has been carrying out this function effectively since 1995. The impact of this Bill, when enacted, will be to bring insurance intermediaries within the same regulatory regime as investment intermediaries under the remit of the Central Bank.

It is against this background that I want to outline the reasons I believe it is necessary to restructure the system of regulating insurance intermediaries and to allocate responsibility for this function to the Central Bank. The system of self-regulation is no longer appropriate to an area of such fundamental importance to the consumer. The existing regulatory provisions under the Insurance Act, 1989, are inadequate to regulate the activities of insurance intermediaries. The powers available to the Central Bank under the Investment Intermediaries Act, 1995, are more comprehensive and robust than those available to the insurance regulators under the Insurance Act, 1989. The considerable overlap between the activities of insurance intermediaries and investment intermediaries requires that the same regulator should now cover both activities. There is a need to minimise the opportunities for regulatory arbitrage, that is, an intermediary using the existence of different regulators to place itself under the least onerous regulatory regime. There is a need for a level playing field of regulation for insurance intermediaries and investment intermediaries, who are now facing into direct competition, particularly in the area of single premium life insurance. Both insurance and investment intermediaries are now equally bound by the provisions of the Investor Compensation Act, 1998. Finally, the proposed establishment by the Government of a single regulatory authority for all financial service providers will, in any event, bring insurance and investment intermediaries together under the one single regulator. This Bill will launch the initial stage of this process.

I should also point out that in its report to the Government on the single regulatory authority, the implementation advisory group recommended that the legislation then under preparation to transfer responsibility for insurance intermediaries to the Central Bank should be enacted urgently and be in place before the establishment of the single regulatory authority.

I would now like to proceed to the provisions in this Bill to facilitate making disclosure regulations. The prime objective in introducing these measures is to provide accurate and proper information to consumers to enable them to make rational and informed choices when purchasing insurance. This should lead to greater competition on the market, thus reducing the price of insurance. The proposed legislation provides for measures to strengthen and enhance existing consumer disclosure measures made under European legislation. The proposals will lead to a simplification in the presentation of insurance products. The regulations that I will make after the enactment of this legislation will make any attempt at the mis-selling and the churning of life assurance policies more obvious to the consumer and, therefore, more difficult to achieve. Thus the regulations will clarify the implications and costs involved in taking up life assurance products, including the payment received by the intermediary selling the product before the consumer signs along the dotted line.

In light of the changes proposed for the taxation system as it applies to life assurance which will come into effect from the beginning of next year, it is important that the temptation to mis-sell new insurance products that might attract more favourable taxation treatment than a client's existing policies is removed by this Bill. Experience has shown that many purchasers of non-life insurance are equally at sea when it comes to understanding the precise nature of the product, its constituent elements and of the price being charged. Enabling provisions relating to non-life insurance will provide for regulations to be introduced detailing elements such as policy loadings, restrictions, discounts, excesses, commission payments and any other amounts payable. Some of these elements can have a significant effect on the cost of insurance cover and in particular the cost of compulsory motor insurance cover. The introduction of such transparency measures will assist consumers in controlling costs and alleviate the unnecessary cost burdens which result from a lack of information at point of sale and/or at renewal. As was the case with the drafting of the life assurance disclosure regulations, it is my intention to consult widely with industry and consumer interests before finalising similar non-life disclosure regulations.

The Bill will provide the statutory framework for the introduction of regulations requiring the provision of information to insurance consumers before the conclusion of contracts and on an ongoing basis thereafter. Under the new regulations consumers will be entitled to comprehensive information from the insurer or insurance intermediary on the terms and conditions of the proposed insurance policy which will include the type of policy, the benefits and options, the cooling off provision, the purpose, intention and cost of the policy, the means and duration of payment of premiums and, vitally, the consequences of early surrender.

Deputies will be aware that late last year I abolished the cap on the remuneration paid to intermediaries. This was done for a number of reasons. First, there was a danger that other forms of payment might be devised to circumvent the maximum commission levels. Second, it was brought to my attention that other EU insurers might be deterred from entering the Irish market because of the cap on commissions.

Since it is clearly in the interests of consumers to have as many insurers as possible active in the market in order that the best possible choice of product and price is available, I considered it important to abolish the cap. However, although the removal of the cap has these advantages, it gives rise to the risk of a rise in commissions in the absence of other controls. The best control in the context of a more competitive market is disclosure and transparency for the consumer. Consequently, as part of this overall comprehensive disclosure package, I am proposing to introduce mandatory disclosure of insurance intermediary and salespersons' remuneration as a separate item of disclosure.

I will now address the reinsurance provisions in the Bill. Due to the absence of any direct consumer interests in reinsurance, the supervisory authority has imposed a light regulatory regime on this branch of the industry until now. At present an informal system of authorisation of reinsurance companies operates based on a simple statutory notification requirement and an administrative arrangement whereby such companies will not be registered by the companies registration office if the information in the strategy notification gives rise to concern. While the current informal system has worked satisfactorily to date, it is considered necessary to expand the requirements and to make provision for a more formal regime that could be introduced if necessary at short notice.

The position regarding reinsurance companies has changed significantly in recent times, particularly with the development of the Irish financial services centre. I intend to impose more stringent obligations on reinsurance companies to ensure the continuation of the excellent international reputation of the international financial services centre and the Irish financial services sector in general.

This Bill provides for making regulations that will require reinsurance companies registered in Ireland to provide detailed information to the Department at the time of their establishment and subsequently to notify any changes in their situation on an annual basis. It also makes provision for the possible future extension to reinsurance companies of some or all the provisions in national legislation governing the authorisation and supervision of insurance undertakings. The main purpose of the new provisions is to prevent the registration or establishment in Ireland of reinsurance companies of dubious standing. We also anticipate the introduction in the medium term of EU legislation on the regulation and supervision of the reinsurance industry.

For the same general reasons I have outlined, this Bill will also change the provision included in the Insurance Act, 1989, which exempted contracts of reinsurance or insurance intermediaries solely engaged in reinsurance contracts from Part IV of that Act. Reinsurance contracts and reinsurance intermediaries will in future be subject to all insurance legislation.

With regard to authorised officers, the revised provisions of the Bill in this area will apply to the Insurance Acts, 1909 to 1989, and subsequently to the proposed disclosure regulations to be made under this Bill. The provisions in the 1989 Act governing the appointment of authorised officers gave rise to concern when we sought to use these provisions in the past. Questions were raised in regard to the appointment of authorised officers and the restricted manner within which they were required to carry out their tasks. I have decided to update the provisions to address the concerns referred to previously and to bring them into line with the analogous provisions for authorised officers contained in the more recent Investment Intermediaries Act, 1995, and the Consumer Credit Act, 1995.

The more notable changes contained in the provisions are as follows: the Minister may appoint a person who is not an officer of the Department as an authorised officer; there is a specific reference to persons in respect of whom powers may be exercised by an authorised officer; there are several new categories of information which will be open to the authorised officer to inspect; duties may be imposed on specified persons, particularly professional persons such as an examiner, liquidator, receiver and others to provide information to an authorised officer; and an authorised officer may be empowered by a court warrant to enter a private dwelling.

The various provisions covering offences and penalties of the Insurance Acts, 1909 to 1989, have been reviewed and updated on the basis of experience and other relevant factors. Some of these provisions date from as far back as the Insurance Act, 1936. The most significant changes are as follows: prosecutions for summary offences may be taken by the Minister; there is an extension of the timescale within which prosecutions can be commenced from six months to two years, and beyond this period in specific circumstances; and the Second Schedule to the 1989 Act which sets out the amount of penalties that can be imposed by the courts, is being replaced by a new Schedule containing significant increases in penalties.

I will now turn to the Bill itself. Section 4 amends section 3 of the Insurance Act, 1989, by updating and increasing existing offences and penalties, respectively. Under current insurance legislation, the prosecution of offences is ham pered by the six month prosecution deadline from the date of the offence. This section enables the Minister to bring summary proceedings for any offence under the Insurance Acts and insurance regulations at any time within two years from the date at which an offence was committed, or at any time within six months from the date on which sufficient evidence is available to justify proceedings, subject to a limitation period of five years from the date on which the offence was initially committed.

This section also empowers the court to order persons convicted of an offence to pay the costs and expenses incurred by the Minister in relation to the investigation, detection and prosecution of the offence.

Section 5 expands the obligations on reinsurance undertakings contained in Section 22 of the Insurance Act, 1989, and sets out the various headings under which notification to the Department is required. The amended text is intended to include reinsurance undertakings that are registered or attempting to register as non-resident companies in Ireland.

Section 6 allows the Minister to make regulations for the supervision and regulation of reinsurance undertakings, should he or she consider this necessary. It is intended, however, to provide ample opportunity for the provisions of section 5 to operate effectively before making use of this section and bringing reinsurance undertakings formally within the regulatory regime. The proposals to proceed along the lines set out in sections 5 and 6 above have been discussed with the industry representative bodies. These have indicated their broad agreement to our proposals on the basis that they balance the need to protect the reputation of the financial services sector with the desirability of not imposing an unnecessary regulatory burden on reputable reinsurance companies.

Section 7 provides a firm legal basis for introducing regulations on the provision of information to insurance consumers before, during and after the conclusion of insurance contracts. Current insurance legislation and consumer legislation have proven to be deficient in this regard. This section sets out in precise terms the nature of the obligations that may be imposed by regulation on insurance undertakings and intermediaries in so far as the mandatory provision of information to their clients is concerned. For added clarity, information requirements about the insurance undertaking and the commitment of clients are set out in a separate Schedule – Schedule II – to the Bill.

Section 8 provides for the repeal of Part 4 of the Insurance Act, 1989. The essential elements of this Part, as amended, will be incorporated in the amended Investment Intermediaries Act. This will provide a single reference point for both insurance and investment intermediaries from a regulatory viewpoint.

Section 9 amends section 59 of the Act of 1989 by providing for the appointment of authorised officers by the Minister. The amendment provides that the Minister will not be restricted to appointing officers of his or her Department and, accordingly, may select authorised officers with the specific skills and qualifications necessary to carry out the particular task in question.

Section 10 extends the scope and enhances the powers of authorised officers to carry out investigations on behalf of the Minister under the Insurance Acts. Experience has shown that the current authorised officer system of our Department encountered difficulties that hindered investigations into unauthorised insurance business and breaches of the Insurance Acts. The amended provisions clearly state the entities that are subject to the powers of an authorised officer and expand on the actions that an authorised officer is empowered to carry out.

This section sets out specific obligations on persons to whom this section applies to co-operate with an authorised officer. A person who obstructs, misleads or fails to co-operate with an authorised officer in the exercise of his or her powers shall be guilty of an offence.

Section 13 repeals section 110 of the Insurance Act, 1936, which specified the time limit within which the prosecution of offences could be initiated. In accordance with section 4 of this Bill, common time limits will be introduced for the prosecution of offences under the insurance Acts. The existing legislation requires that a prosecution be initiated within six months of the date of the offence. This was impractical and I consider that the extended time limit of two years, or up to five years in specific circumstances, is more appropriate to modern day circumstances.

Section 14 provides for transitional provisions to apply to life assurance proposals and policies entered into before the commencement of section 6 of this Bill. The proposed additional policy holder information requirements cannot be applied retrospectively. This brings me to the amendments to the Investment Intermediaries Act, 1995, an Act that is already administered and enforced by the Central Bank of Ireland.

Section 16 amends section 2 of the 1995 Act to include definitions that are relevant to insurance. Two important definitions in this section are the proposals to include insurance policies within the meaning of investment instruments and also a client of an insurance intermediary in the definition of investment business firm. Arising from these amended definitions, an insurance intermediary will be captured by the definition of an investment business firm and will, accordingly, be brought into the area of regulation and supervision of the Central Bank of Ireland.

Section 17 amends section 9 of the Act of 1995 by replacing subsection 2 of that section. The original subsection proved to be confusing by attempting to define when an investment business firm was not regarded as operating within this State. The revised text defines when an investment business firm is regarded as operating within this State. It shall meet the necessary criteria where its registered office is in the State, it has a place of business in this State, or it is providing investment business services or investment advice to private individuals in this State.

Section 18 inserts a new section 13A after section I3. Section 13A outlines transitional arrangements in relation to insurance intermediaries existing on the day before this section comes into effect. Provided that they apply to the supervisory authority, the Central Bank, for authorisation within a period of three months, these will stand authorised pending a decision from the supervisory authority. While the supervisory authority is considering an application for authorisation it has the power to impose conditions and issue directions to the intermediary. An intermediary may appeal any such directions or conditions to the court.

Section 19 amends section 17 by removing the necessity for the supervisory authority to keep separately a register of investment business firms which are deemed authorised since, for regulatory purposes, no useful function is served by keeping separate registers for authorised and deemed authorised firms.

Section 20 presents section 25 in a simpler format. In addition, this section states that an investment product intermediary will also provide the service of receiving and transmitting orders in tracker bonds and in insurance policies.

Section 21 amends section 25 by the insertion of new subsections outlining specific requirements for insurance intermediaries. Essentially, these subsections restate the provisions relating to brokers, agents and tied agents which were part of Part 4 of the Insurance Act, 1989, now being repealed. Section 25A provides that an intermediary shall not place, or attempt to place, insurance other than with an undertaking. It also requires an intermediary to make his or her intermediary category known to a client. Sections 25B, C and D define the activities of a broker, an agent and tied agent. Section 25E defines the scope of agency in relation to insurance agents. It also governs the acceptance by an intermediary of insurance proposals. Where a premium is paid to an insurance intermediary in respect of a renewal of a policy invited by an insurer, or is paid in respect of an accepted proposal of insurance, it is deemed to have been paid to the undertaking.

Furthermore, it also provides that where a premium is paid to an insurance intermediary in respect of a renewal of a policy invited by an insurance undertaking, or in respect of an accepted proposal of insurance, it is deemed to have been paid to the insurance undertaking. Section 22 amends section 26 (1), as amended by the Investor Compensation Act, 1998, by outlining the specific services that a restricted activity investment product intermediary – RAIPI – may provide and by the addition of receiving and transmitting of orders in tracker bonds and insurance policies to this list. Insurance undertakings are added to the list of bodies to which a RAIPI may transmit orders. Subsection 2A provides that a person who is an insurance intermediary on the day prior to the coming into effect of section 15(c), and who remains within the definition of a RAIPI, shall be deemed to be an authorised investment firm. Other than where acting as a deposit agent or a tied insurance agent, a RAIPI is not permitted to handle customers' cash.

Section 23 removes the provision in section 27, whereby a representative body approved by the supervisory authority would regulate its members. This section requires investment product intermediaries who are acting as insurance intermediaries to comply with the provisions of the insurance Acts. Allowance is also made for the supervisory authority to exempt certain classes of intermediary from the requirement to hold professional indemnity insurance where it considers that the clients of the intermediaries are otherwise adequately protected.

Section 24 provides for the substitution of the existing section 28(1), by a new text which simplifies the amendment of section 28(1), made under the Central Bank Act, 1997, and extends the obligations on product producers to insurance matters. The provision in section 28(1) whereby a product producer was permitted to appoint an investment product intermediary to act on its behalf on the basis that the intermediary was a member of a representative body, approved by the supervisory authority, is removed since the supervisory authority will be engaged in direct regulation and will no longer be issuing such approvals to representative bodies. This section also amends section 28(2) by permitting a product producer to assume, for the purposes of section 28(1), that any investment product intermediary who has been authorised by the supervisory authority complies with the provisions of the Insurance Acts.

Section 25 amends section 29 by qualifying the specific advertising in which RAIPIs must indicate that they are not permitted to accept cash and by adding tied agents to the category of RAIPI that is permitted to accept cash. Section 26 amends section 30 to provide for the form of receipt to be issued by the intermediary to the client, the manner in which this format may be altered by the supervisory authority from time to time and the time period for which an intermediary must retain a record of the receipt. The requirements set out in this section may be aug mented from time to time by codes of practice issued or approved by the supervisory authority under section 37 of the 1995 Act.

Section 27 inserts a new section 31A, disapplying Part IV of the investment Intermediaries Act to travel agents and tour operators. This is a similar proviso to that which was included in Part IV of the Insurance Act, 1989. Section 28 repeals section 51(5)(e) of the 1995 Act, which provides that a single body may cover the bonding obligations of an investment business firm that is also an insurance intermediary. Since insurance intermediaries are now included within the definition of investment intermediaries and since in any event the requirement to hold a bond under the Insurance Act, 1989, was repealed by the Investor Compensation Act, 1998, this subsection is no longer necessary.

Section 29 amends section 74(2) by expanding this section to include certain information provision requirements for persons acting as insurance intermediaries or as insurance agents, the format of which information may be modified by the supervisory authority within the remit of section 74(1).

In the course of the preparation of this Bill over the past two years, I and my officials met a broad range of interest groups who have represented the interests of the industry bodies concerned and insurance consumers. These included the Irish Insurance Federation, IIF, the Irish Brokers Association, IBA, the Professional Insurance Brokers Association, PIBA, the Insurance Intermediaries Compliance Board, IICB, the Society of Actuaries, SoA, the Consumers Association of Ireland, CAI, the National Pensions Board, NPB, the Director of Consumer Affairs, DCA, the Insurance Ombudsman and the Central Bank of Ireland, which will be taking over responsibility for the regulation of insurance intermediaries.

Altogether, we have had a total of 30 separate meetings with representative groups from both the insurance industry and consumer groups. My officials also provided a presentation on the broad outline of the Bill last November to the Oireachtas Joint Committee on Enterprise and Small Business.

I thank all the various interest groups who furnished their opinions to us during the consultation process and, in doing so, contributed to the final outcome of this Bill. I look forward to hearing the contributions of the various Deputies on the contents of the Bill and I commend it to the House.

I welcome this opportunity to respond on behalf of my party to the Minister of State's introduction of the Insurance Bill, 1999, which is intended to allocate regulatory responsibility for insurance intermediaries to the Central Bank of Ireland. We note it is intended to use the powers available to the Central Bank under the Investment Intermediaries Act, 1995, and that both investment and insurance intermediaries will come under the same regulatory regime. This is an enabling Bill to allow the Minister to introduce further provisions with regard to the financial services sector and life and general policies.

The proposed new powers to appoint authorised officers and the powers granted to them under sections 9 and 10 are very wide. Concern has been expressed that this may result in discrepancies in the powers and procedures provided for in the Insurance and Companies Acts. Better safeguards should be provided for the Minister and his officials to guard against the abuse of such powers. These should include court approval of authorised officers, as provided for in the Companies Acts, including the right of appeal against the appointments.

The Minister of State believes a single regulator will provide a more efficient and effective regulatory regime. While it may appear that insurance intermediaries are involved in both the insurance and investment industries, there is a difference between the two types of intermediary. In streamlining the regulatory system, there is the danger of overregulating insurance intermediaries.

Since the enactment of the Investor Compensation Act in 1998, all insurance intermediaries are obliged to comply with its provisions on payment of compensation to their clients. While welcome, the provisos in this Bill are short of what is required, especially in view of the huge amount of time spent on this issue over the years. These only amount to a halfway house in dealing with the industrial insurance aspect. In effect, the legalisation only covers the lacuna that previously existed with regard to the misappropriation of client moneys or where policies were incorrectly set up.

I understand that insurance intermediaries will now come under two categories, those who do not accept cash – restricted activity product intermediaries – and those who accept cash – investment product intermediaries. In view of this I strongly urge the Minister to ensure that the regulatory system is appropriate and not overregulated as that may lead to a loss of jobs and the closure of smaller companies, especially in rural areas.

Insurance intermediaries play a vital role. They are the champion of the consumer in certain areas against the might of the large institutions. The Minister of State is already aware from the proceedings of the Committee of Public Accounts of the powers at the disposal of large institutions when dealing with consumers. The recent inquiry by the committee revealed huge anomalies. In view of this, any proposed regulatory provisions should incorporate the larger financial institutions.

Care is required regarding attempts to increase the powers of these institutions at the expense of the insurance intermediaries. Such a move would disadvantage consumers. It is important to introduce a level playing field. Regulation is important but we must ensure it is not at the expense of the smaller broker, especially in view of the huge size of the business. I did not realise that billions of pounds are involved. It is important that any watchdog role should not be confined to brokers.

All the banks deal directly with insurance companies. They have the facilities to go through their accounts and they know who is doing business. It means they can pirate business away from brokers by dealing directly with clients. The Minister of State is well aware of this. Banks are selecting clients and in the process branch managers can receive paybacks if they pirate business. That should not be allowed and it needs to be addressed in this Bill.

By offering an independent forum, insurance intermediaries provide a valuable service to the State. They encourage the consumer to take out life protection and pension cover and to save for the rainy day.

This reduces the burden on the Department of Social, Community and Family Affairs as it allows consumers to be financially independent in the face of a tragic death in a family or an unexpected illness. Figures show that 40% of males and 48% of females do not have life cover, while average life cover is totally inadequate at £50,000 per person. In addition, only 52% of employees, 27% of the self-employed and 12% in of the agri-sector have pensions. People have been very fearful of insurance companies due to lack of regulation and stories which they have heard. However, given property prices, etc., £50,000 is not adequate and I hope the Minister will establish an independent body to advertise and promote the benefits of doing business with legitimate companies and to stress the safeguards of cover.

Group pensions are huge business and this is where real growth exists, but they are not covered by the Bill, except that regulation will come under the Pensions Board. However, it would appear that the Pensions Board does not come within the regulations of the Bill.

The Minister should encourage consumers to have adequate protection for death, illness and retirement. If the Bill is enacted in its current form, it will discourage consumers from taking out policies and lead to confusion because of the overload of facts and figures which result in excessive paperwork. It will make both selling and buying insurance unnecessarily cumbersome and time consuming.

I call on the Minister to support independent advice, which is very important, to ensure the proposed new legislation is simplified and does not become so onerous for insurance intermedi aries that they decide to leave the market to larger players. Such a situation must be avoided as it would not be desirable. Independent advice is very important, particularly given the statistics which indicate the lack of cover. Cover is vital given taxation on estates, endowment policies, etc.

What does the Minister mean by the call in section 6 for adequate levels of capital to be maintained by insurance intermediaries? For example, in the case of a restricted activity intermediary, the level of capital is immaterial to the consumer as it is not proposed that they handle cash. I ask the Minister to explain this provision and to ensure that such requirements are not imposed without due consultation with the representative bodies of insurance intermediaries.

We note that the insurance industry has undergone many changes in preparing for the enactment of the Bill, involving a smoothing out of changes which offer better up front value to consumers. Given that the industry has corrected the problem of early surrender values, the Minister should take the co-operation of the industry into consideration.

Under the new section 43B, the Minister should be aware that the surrender values can only be given following the issue of an actual policy, as the cost of policies will vary depending on each individual's age and medical profile. I suggest, therefore, an amendment to annex II in the Third Schedule so that the disclosure regulations are issued with the policy document and the cooling off notice. The Consumer Association of Ireland would support this policy.

In future the Pensions Board will not come under the single regulator, unless the Minister intends introducing a change in this.

New section 43D, set out in section 7, states that new units must be purchased in the case of pension, investment and life products. Therefore, any information at point of sale can only be indicative, and I ask the Minister to provide for this in the Bill. New section 43D(1)(b) seems to impose considerable additional time on the insurance intermediary to make additional visits to the consumer to verify his requirements and acceptance of policy conditions. This is not workable in practice as time costs money and insurance intermediaries cannot make three or four visits to a client to sell one policy, especially in this age of tele-working with it becoming increasingly difficult to meet appointments due to traffic. This should be simplified. Many intermediaries use the telephone or e-mail to clarify points at various stages in the sale of products. Therefore, it is appropriate that the declaration should be attached to the policy application form and worded in such a way as to give the consumer an “out” in the cooling off notice should that be required. We are entering a new era of Internet banking and insurance, and the Bill should take due consideration of the enormous changes in this regard.

Regarding new section 43A(2)(a), I note that the Minister and his officials have relied heavily on the Society of Actuaries of Ireland in drafting the disclosure guidelines. However, I am not convinced that a level playing field has been achieved in relation to disclosure of costs, overheads, sales and remuneration. Too much discretion seems to be left to individual actuaries in large institutions, allowing them present their disclosure information in the best possible light. Insurance intermediaries are not allowed this facility as their commission is shown in a separate column in returns. It is important that there is a level playing field in terms of the payment of commission for large institutions and smaller intermediaries. Car or mobile telephone salespeople are not obliged to inform anybody of their commission, and while I believe in transparency, large institutions can off-set high cost factors and it is important that the cost of products is clearly established. The Minister is demanding that insurance intermediaries declare commission in bold print, and it is important that large institutions do likewise and are not allowed off-set costs against other things. Regulation will be very difficult in this context.

The Minister is taking the proposed disclosure regime too far. For example, disclosures on pure protection products is totally unnecessary. Both the professional insurance brokers association and the Irish Brokers Association have explained this to the Minister in correspondence. Pure protection products do not carry a value. The insurance intermediary commission has no material effect on this guaranteed product. The consumer will be paid in full on death or serious illness regardless of what or when the insurance intermediary is paid. Even the consumer association is prepared to accept non-disclosure on pure protection products, and we will be tabling an amendment in this regard.

I would like to see two further amendments introduced, namely, providing for the appointment of an independent authority to which cases can be submitted where it is perceived that actual guidelines have been ignored or manipulated. Insurance intermediaries are given the facility to state what their commission covers, ie, payment of office, overheads, staff costs, time, etc. Consumers must be informed that commission is not a perk, but the equivalent of a salary or fee for doing a job. In order to create a level playing field between direct sellers and insurance intermediaries, the Minister must ensure that the broker distribution channel is fully compared to institutions.

In the context of new section 43F(1)(a)(i)(IV)(ii), I note the Minister is suggesting that commission payable be subject to a statutory notice. Is the Minister proposing to regulate commission payments? If so, then it is anti-competitive and I will very strongly oppose it.

Regarding new section 43F(1)(b), I suggest the Minister discuss it with the industry and the insurance intermediary representative bodies and agree to issue all finalised information with the policy and cooling off notice.

Banks can cherry-pick clients to take up house and car insurance because a massive volume of business goes through them. They are diversifying and are currently acquiring insurance companies. It is a popular element of their operations and it is clear from recent takeovers that insurance is seen as part and parcel of banking. It is important that that sector is also regulated.

Will the Minister of State ensure that only those who comply with this legislation can sell insurance or give advice on insurance and that any professionals who dabble in the insurance business will be prevented from doing so in future unless they comply with the Act? Members of the accountancy profession dabble in insurance. They give referrals and recommend clients to insurance companies.

I am concerned about the regulation whereby restricted activity intermediaries do not handle cash. In discussing this with insurance intermediaries, it seems that many of them do not have bank accounts and, therefore, cannot facilitate direct debit payments. I seek clarification on this issue. This means that insurance intermediaries are given small amounts of cash from time to time. If this practice is discontinued a large number of people will be disenfranchised from using the services of insurance intermediaries and will not be able to avail of independent advice. The less well off will be unlikely to purchase insurance products because they feel intimidated by banks to a certain extent and many of them use credit unions.

The Minister has a duty to ensure that all consumers can avail of the services of an insurance intermediary. Such individuals do not just sell products. They provide personal advice and point the consumer in the right direction. This Bill is welcome but it is not comprehensive enough as it does not cover all the sectors of the insurance industry, particularly in regard to buying and selling a house, borrowing money and other personal financial transactions.

The proposed abolition of section 48, which deals with life accounts, will lead to intimidation of the vulnerable consumer who will be forced into a bank to clear his funds in order to obtain a draft. A section 48 account is a client account which brokers use and it has worked very well to date. It will be unsatisfactory if they are abolished as the banks are competing with insurance intermediaries and I will table an amendment to this section. It will be extraordinarily difficult for the transfer of funds if a person decides to cash in his or her policy because the cheque will have to be forwarded by the insurance intermediary to the client who, therefore, will have to go to a bank to get the cash if he or she wishes to transfer from one company to another whereas currently he or she can switch through his or her broker. This will be restricted. I also seek clarification on whether that is the purpose of the abolition of this section as it refers exclusively to client accounts.

Debate adjourned.
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