Seanad Éireann debate -
Wednesday, 16 Jun 1971

Vol. 70 No. 5

Insurance Bill, 1971 (Certified Money Bill): Second Stage.

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

Minister for Industry and Commerce (Mr. Lalor)

The purpose of this short Bill is to raise the limit of the aggregate potential liability I may assume in respect of export credit guarantees from £10 million to £30 million. The extent of the increase is due partly to normal expansion in the demand for export credit insurance and partly to the introduction, on 1st February last, of a new State-backed scheme of export credit insurance.

Export credit insurance enables exporters to insure against loss the risks entailed in selling goods abroad on credit terms. These risks fall into two main classes: commercial risks, arising from default or insolvency of the buyer, and political risks, arising from the outbreak of war or revolution in the buyer's country or from Government action in the buyer's country which would prevent the goods being delivered or paid for. Examples of such action would be the introduction of new import controls or restrictions on payment transfers.

In most western European countries, and indeed elsewhere too, export credit insurance, covering both commercial and political risks, is provided by the State. In Ireland, up to recently, only political risks insurance was guaranteed by the State, but under the new scheme all export credit insurance will be so guaranteed. I think it would be helpful at this point to explain to the Seanad the background to this development.

In 1955, the then Minister for Industry and Commerce, by virtue of his powers under the Insurance Act, 1953, concluded an agreement with a group of four Irish insurance companies that they would issue political risks insurance policies which would be entirely reinsured with the Minister. The companies would also issue commercial risks policies but these would be issued on their own account.

The system was quite satisfactory and for a long time provided exporters with the insurance backing they needed. However, by the late 1960s Irish exports had expanded enormously. They now included an increasing proportion of sophisticated capital and engineering goods, normally sold on longer credit terms than the simpler kinds of consumer goods. Exporters were exploring new markets where satisfactory commercial information was harder to get. They were finding it harder to compete with exporters from other countries whose State-backed credit insurance schemes gave them facilities which it would be impossible for a commercial insurer, operating on normal commercial insurance principles, to provide.

A working group set up by my predecessor to examine the adequacy of existing Irish export credit insurance facilities confirmed this situation. The group, which included representatives of the insurance companies and of exporters, as well as Córas Tráchtála and Government Departments, concluded that Irish exporters needed the same export credit insurance facilities as their competitors from other countries and at premiums broadly comparable with those paid by their competitors. They recommended that State support should be given for a scheme covering both commercial and political risks and that the insurance facilities provided and the premiums payable should be reasonably comparable with those of other countries. The recommendations of the group were accepted and it was decided that the best method of setting up the new system would be to arrange with an existing Irish owned insurance company to administer the scheme, as my agent, in return for an agreed commission. At that time there were two Irish owned and controlled insurance companies, which either were engaged in export credit insurance, or had experience of it. The two companies were approached. One company, after some discussion, indicated that it did not wish to handle the scheme and agreement was finally reached with the other company, the Insurance Corporation of Ireland Ltd. This company has been engaged in export credit insurance for 15 years continuously, on its own account for commercial export credit risks insurance and on behalf of the Minister for Industry and Commerce for political risks insurance. Under the new scheme, when dealing with export credit insurance, the company will be acting solely on my behalf and solely as my agent. I consider myself fortunate to have secured the services of a company with so much experience and technical knowledge in this field as the Insurance Corporation of Ireland Ltd. have.

From the point of view of the exporter, the new scheme of export credit insurance provides, in a single policy, cover for the commercial and political risks attendant on selling goods abroad on credit terms. Similar cover is available for design and planning services carried out in Ireland in connection with engineering or constructional works executed outside Ireland.

The general terms of the export credit insurance cover now available and the premium rates charged are reasonably comparable with the terms of such cover and the premium rates charged in other countries.

The new scheme of export credit insurance will result in an immediate increase in the aggregate amount of my potential liability for export credit guarantees, since I will be taking on the provision of cover for commercial export credit risks, formerly outside the scope of the State scheme. It is to be expected, in addition, that the new and improved facilities will attract considerable additional business as exporters realise the support they can get from export credit insurance. Indeed, one of the considerations mentioned in the report of the working group was the necessity that exporters should be fully informed of the benefits of export credit insurance, so that the expansion of exports and the diversification of export markets could thus be promoted.

A scheme of credit at preferential rates for exporters of capital goods has been in preparation by the banks for some time. The introduction of the scheme, which I hope will not long be delayed, will lead to a considerably increased demand for export credit insurance.

Because of all the factors mentioned, the present limit of £10 million on the aggregate liability which I may assume for export credit guarantees will be too low and under this Bill I am seeking to have it raised to £30 million. It is, of course, hardly necessary to state that what is involved is a maximum potential liability. The aggregate amount of the liability at any time for principal moneys in respect of export credit guarantees would become an actual liability only if risks covered by all the insurance policies in operation at the time materialised together. It will be appreciated that this is an extremely unlikely contingency. In fact, it is my intention that, taking one year with another, the State scheme of export credit insurance should involve no net loss to State funds. I commend the scheme to the House.

Mr. Alexis FitzGerald

I shall start the few remarks I have to make with a comment on the last words of the Minister, which relate to the assurance that he gives the House—not an assurance, that is not a fair word to use— the belief that a State scheme for export credit insurance should involve no net loss to the State. Since 1953 we have had in existence a provision— section 2, subsection (3) of the Insurance Act, 1953—for export credit insurance. The amount provided in subsection (3) of that Act is £2 million and I think that was amended to £10 million in 1969. The House should have been told by the Minister before this debate began whether any net loss has been suffered by the State by virtue of this provision of the original Act, which is being amended simply, as I understand what is being proposed to the House, by an extension of the amount of the liability that the State can take on.

That is a relevant consideration where we are dealing with realities, and among the realities with which we have to deal are the resources available to the community. I am sure that the Minister, in reply, will be able to tell me that this is a figure that, if I were knowing enough, I should already know. However, I do not know, and perhaps at this point in the debate he could tell us what loss has been suffered by virtue of the provision—a provision which, having been produced in 1953, was, I should have thought, introduced about 30 years too late.

A similar sort of provision has existed in Britain since the termination of the Great War. It was introduced in 1918, 1919 or 1920. We have only lately realised that exporters need to be insured against political and commercial risks and that there is the matter of having to pay a premium to secure the benefit of the insurance given. I do not know anything about the Insurance Corporation of Ireland Ltd. except that they are quoted as an Irish Stock Exchange company. I do not see why, speaking with absolute detachment from that company, they should be given the singular position that the Bill seems to propose to give to them.

The Minister mentioned at the beginning of his speech the agreement which was made with four Irish insurance companies. Would the Minister tell us who or which were the four Irish insurance companies? He used a phrase at another stage that there were two Irish owned and controlled insurance companies. Has that got a special significance? Are there old Irish insurance companies or an old Irish insurance company? Perhaps the oldest of them all is the one that is no longer Irish owned in the sense that the shares are held in Ireland but are excluded from being described as Irish, although wholly controlled in Ireland. I should like to know, and I think it is only fair that the House should be told, which were the two companies that were approached and which is the second company which refused.

I am wholly in favour of export credit insurance. It is a necessary and significant arm in the matter of developing our exports. I am only sorry that it has come later than it should have come. I know that in another country the premium which the supplier, the Irish exporter in this case, pays is not paid to a company which is on the Dublin Stock Exchange but which is owned by the State. The State gets the premium and the buyer abroad pays for his goods by issuing promissory notes which are taken up by a bank or banks who take a turn on the operation and take a lower rate of interest for the benefit of the customer and therefore for the encouragement of the exporter. This is done because there is a guarantee from a Government body, not from the Insurance Corporation of Ireland Ltd., whose accounts might well be before the House today when we are considering how a foreign purchaser might value that guarantee of which the Government are guarantors. We have a provision for a counter-guarantee, if I understand section 2 (3) of the Insurance Act, 1953, subsequently amended in 1969 and now proposed to be amended by this Bill.

If I were a gnome of Zurich I would tend to estimate the value of a direct guarantee in terms of the value of the direct guarantor. If the Government were not the direct guarantor I would value the direct guarantee less by a percentage which is this cost to the exporter. There is a lot to be said for a State-owned insurance company with the authority of the Government behind them dealing with this matter. The resources of the Government would be made available to the company taking and guaranteeing the risks which are proposed to be guaranteed to the extended limit proposed by this Bill.

I do not think it is open to us to propose an amendment of this kind to this section, which was already amended by another Act to deal with this. The Minister and his advisers could have a look at the whole scheme for the guarantee of exports here to see if the State is making enough money out of it or if the exporters are getting encouragement by this method to achieve a sufficiently high level of exports, because the customer who is buying the goods is not satisfied with the machinery that is proposed to him as being his guarantee against the fault of the exporter.

Mr. J. Fitzgerald

On behalf of my party I should like to welcome this Bill. I regret that in discussing the Bill, which is described as the Insurance Bill, 1971, we are so restricted in what we can say about insurance in general. I am sure that there are many aspects of insurance that Senators would like to refer to and to discuss if they had the opportunity. Those who read the Dáil debates on this Bill found that it was very easy to go outside the scope of the Bill and so bring the wrath of the Chair down on one. As a result there was practically no discussion on any other aspect of insurance.

Mention has been made here of the Insurance Corporation of Ireland which are a company that give what is known as an insurance bond to building contractors. Those of us in public life will realise that because of the apparent delays in the issuing of bonds to building contractors, it is found that the building of houses has been greatly restricted as a result. Having made that point I do not wish to debate any other aspect of insurance.

When introducing the Bill in the other House the Minister pointed out that export credit insurance was introduced in this country in 1955 by the then Minister for Industry and Commerce. He also pointed out—although I think no mention of this is made in his introductory speech here—that in the 15 years since the drawing up of the present scheme Irish exports have increased from £110 million to £468 million per year. Therefore, the 1955 scheme no longer provides the facilities needed by exporters today.

Some doubt and concern seem to have been created by the handing over of this scheme to one insurance company, namely the Insurance Corporation of Ireland. Senator Alexis FitzGerald seems to have some doubts on this and I agree with him in some ways. In his introductory speech the Minister said:

At that time there were two Irish owned and controlled insurance companies, which either were engaged in export credit insurance, or had experience of it. The two companies were approached——

I think we can all accept the Minister's word on that.

——One company, after some discussion, indicated that it did not wish to handle the scheme and agreement was finally reached with the other company, the Insurance Corporation of Ireland Ltd. This company has been engaged in export credit insurance for 15 years continuously, on its own account for commercial export credit risks insurance and on behalf of the Minister for Industry and Commerce for political risks insurance. Under the new scheme, when dealing with export credit insurance, the company will be acting solely on my behalf and solely as my agent. I consider myself fortunate to have secured the services of a company with so much experience and technical knowledge in this field as the Insurance Corporation of Ireland Ltd. have.

We can all accept that the Minister did not lightly hand over this very good business. I believe—and Senator Alexis FitzGerald has pointed this out —that there is no risk involved for the insurance company because the political risks are being underwritten by the State. The Minister, when he is replying, can correct me on that if I am wrong, but I feel that this is a good business risk for the Insurance Corporation of Ireland. However, I am also satisfied that the Minister did not hand it over to a particular insurance company without first having consulted other insurance companies.

Mr. Russell

I shall make only a few brief remarks because most of what I intended to say has been covered by either Senator Alexis FitzGerald or Senator Jack Fitzgerald. I notice from the Minister's introductory statement that in 1955 an agreement was reached with four Irish companies under which the Minister underwrote the political risks, and the commercial risks remained with the four companies concerned. If the same situation could have been continued, whereby the Minister would continue to underwrite the political risks, more than one Irish insurance company would have been interested in continuing to underwrite the commercial risks. It was because of the change in the circumstances surrounding commercial risks that the Irish companies, with the exception of one apparently, decided to withdraw from the scheme. That was a pity. As has already been said, it removes the essential ingredient of competition which is very desirable when operating through commercial companies. Of course, it would have been a different situation if the Minister had decided to set up a State-owned company of his own. We could then appreciate the reasons for having a monopoly of this type of insurance.

In his introductory statement the Minister went on to say that on an unspecified date—and perhaps he will give us the date when replying—a working group set up by his predecessor to examine the adequacy of existing Irish export credit insurance facilities confirmed the then situation. In other words, it would be necessary to insure commercial as well as political risks. This group recommended that the risks concerned should be dealt through one Irish owned and controlled company. The actual wording is: "with an existing Irish owned company". Two companies who qualified under that heading were approached and one declined. What would the situation have been if both companies had been interested? Would the Minister have gone against the recommendation of the working party that only one existing Irish insurance company would undertake the administration of the scheme as his agent, or would he have accepted two, or possibly more, Irish insurance companies if they were interested?

The insurance business is quite a substantial business nowadays. I do not pretend to know what the rates of commission are but I would imagine they are quite small. The Minister speaks of "competitive terms" and perhaps he would give us some idea of what the commissions are. The insurance business has grown very rapidly and it is a very heartening indication of the growth in Irish exports when one considers that the risks have trebled in a short number of years and are likely to continue to expand. I should like to ask the Minister what will be the position with regard to this particular type of scheme when free trade conditions obtain and when the protection, which the Irish insurance companies still enjoy under the 1936 Act, goes by the board? Will foreign insurance companies have the right to compete for this type of political and commercial insurance business or will it still be confined to a particular nation's companies within the enlarged European Economic Community?

Since the working party made the recommendation that the scheme should be administered by one Irish company, has the situation changed? In the intervening period has the situation with regard to Irish insurance companies changed? In other words, has any subsequent approach been made to any other Irish insurance company to find out if they would be interested in the scheme? Perhaps the Minister would be good enough to clarify those points when he is replying. I should like to join with other Senators who have spoken in welcoming this Bill. I welcome the reasons for the Bill. The points I have referred to the Minister for clarification are merely made to ensure that all possible avenues in regard to ensuring competitive tenders will be explored by the Minister's Department.

Mr. Nash

I welcome this Bill and in particular I welcome the philosophy behind it. The reasons for introducing it are obvious. However, there is one point on which all of us should be clear. Any exporter who wants to export is not bound to insure with an Irish company if he does not so wish. Quite obviously the purpose of this Bill is to enable him to obtain his insurance at rates which will ensure that his exports are competitive.

The export of goods involves very considerable risks. First of all, the goods must be up to sample, which may lead to disputes. They may well be up to sample but a bad foreign importer, knowing the difficulty facing an Irishman in litigating in foreign countries, may argue that the goods are not up to standard and may refuse to pay for them. The exporter also must be assured of the creditworthiness of the customer who is importing the goods from Ireland. That means a need for any insurance company to have a vast range of knowledge and expertise. It means they must be in touch with agencies in countries all over the world. It obviously would be quite uneconomic for two Irish companies to endeavour to have this expertise in competition. It would mean the duplication of expenses. In so far as political risks are concerned, some knowledge as regards the political state of a country is necessary. If, for example, one is exporting to certain African countries, countries where one is likely to have revolutions of one kind or another, this knowledge is necessary.

Heretofore, the Irish Insurance Corporation—and as I say an Irish exporter was not bound to insure with them if he did not wish to—issued policies to protect the Irish exporter who wished to insure with them. As I understand it, that was a completely commercial venture on their part. They endeavoured to quote competitive rates, and subject to correction by the Minister, I do not think they were entitled to any subvention in so far as that is concerned. I may be wrong.

They also insured against political risk but in so far as that was concerned, as I understand it and again I may be wrong, they were completely indemnified by the Minister. Therefore, as far as the political risks were concerned they were acting to a great extent as insurance brokers do today and were really taking no risk.

The purpose of this Bill is to enable an Irish company quote at rates which will be competitive with those which are being quoted by other Western European countries. In those countries the insurance companies who are covering are subvented and assisted by the State. If the exporters in this country are to be able to export competitively their rates also must be competitive. Therefore, I welcome not only the philosophy of the Bill but I welcome the Minister's handling of it, because to get two different companies doing it would simply double expense no matter how you set about it. It tends to competitive rates. It is quite simple to compare the rates which are being charged by a company in Ireland with those which are being charged by companies in other countries. There is not really very much risk of a company making money at the expense of the State by undertaking an insurance of this kind.

Mr. O'Higgins

I want to make one brief point in connection with this Bill. The Minister has referred to the increase in exports. I think it is worth recording, and I should like the Minister's assent to record this, that by and large the notable increase in exports to which the Minister refers has been brought into being—and hence the necessity for this Bill—by reason of the success of the export incentives which were created by the Finance (Miscellaneous Provisions) Act, 1956. I say this is a non-partisan way because it is necessary that people should know from time to time that there are different political parties in this State, that there have been different Governments in this State, but that the work of progress is not confined to the workings of any one political party in the State. Certainly the export incentives which were created by the late Deputy Gerry Sweetman as Minister for Finance in 1956 have led in a very dramatic way to the expansion in exports, which the Minister, not unnaturally, feels is a very satisfactory position. I think that should go on the record here.

Minister for Industry and Commerce (Mr. Lalor)

Initially, I should like to say that I am glad this Bill has been welcomed in this House. It is the type of legislation which normally one would expect the Seanad to welcome. This was my experience in the Dáil also.

It has been said the necessity for this Bill was brought about by reason of the expansion we have had in exports down the years. Every piece of legislation in relation to the encouragement of industry has contributed to this. Senator Jack Fitzgerald pointed out that it was the Minister for Industry and Commerce in 1955 who made the original arrangement with the insurance companies which was found necessary at that time. I do not want to take away from that in any way.

Senator Alexis FitzGerald referred to the fact that my introductory speech did not include any statement on the experience of the State in relation to political risks up to now. It is my intention that, taking one year with another, the State scheme of export credit insurance should not involve any net loss to State funds. This is stated in the last sentence of my introductory remarks. Up to now there has not been any loss to State funds. The position is that the total premium receipts on political risks insurance up to now has been £127,803——

Mr. Alexis FitzGerald

Over the entire period?

Mr. Lalor

——over the entire period—and the claims paid amounted of £112,539 leaving an excess of £15,000 odd. That has been the experience up to now.

Senator Nash pointed out it was only natural that I should select one company because of the overheads. The hypothetical question was asked; if one of the two companies that had been approached in relation to this had not withdrawn, what would the Minister have done? The company that did not participate was one of the four companies with whom the arrangement had been come to by the Minister at that time, but it dropped the credit insurance business during the years in between. It had not been conducting any of this business at all in the mean-lime. They were not attracted towards this scheme. The Insurance Corporation of Ireland is, in this instance, acting simply and solely as agent for me as Minister for Industry and Commerce.

Mr. Alexis FitzGerald

As agent?

Mr. Lalor

As agent for me as Minister for Industry and Commerce. I think it was Senator FitzGerald who mentioned that unless this company were State guaranteed the potential purchaser at the far end would not be anxious to be insured under it. The whole object of this is to ensure it is not the potential purchaser or the purchaser or the person who has placed the order who will be insured : it is the manufacturer or the exporter who will be sending out the goods who must insure against the commercial and the political risk of being paid, and the State has stepped in here to guarantee against the premium which the manufacturer or exporter here will pay. There is no question of the recipient at the far end insuring himself against non-delivery. The whole operation is for the exporter here to provide a facility.

As I explained in my introductory remarks, the position is that a situation was being reached where our exporters were competing against other foreign companies in a market place where they were able to get a better insurance cover than was capable of being operated here. We have now come up with a scheme whereby our exporter, or manufacturer who is exporting, can get quoted at a comparable rate with that which is available in other countries.

Senator Nash drew attention to the great advantage of using one company as an agent in this regard and suggested that it would sound ridiculous and would be ridiculous to operate two different companies because each would have their respective overheads. As he said, there is necessity for expertise.

I think it was Senator Russell who drew attention to, and read from, my opening remarks that the working group which had been set up by my predecessor, Deputy Colley, had recommended that this type of business be offered to insurance companies. The principal recommendation of the working group—the working group did not recommend any individual insurance company—was that State support should be provided for a scheme of export credit insurance covering commercial risks in addition to the political risks covered by the existing scheme. The second recommendation was that the scheme should provide for the issue of a unified policy covering both commercial and political risks at premium rates reasonably comparable with those charged in other countries. The third recommendation was that the new arrangement should provide for a responsible body which would launch an active campaign of selling export credit insurance so that exporters might be fully informed of the benefits of credit insurance and that the diversification of export markets could thus be promoted. This is what I propose to do in relation to this whole matter and this is why I am before the House—to be enabled to have this amount of money of State guarantee stepped up from £10 million to £30 million.

Senator Russell asked what the situation might be following our entry into the EEC. The situation would not change in any shape or form. As Senator Nash says, there is no restriction on the exporter getting insurance coverage wherever he would wish. Naturally, he is more than likely to operate through the Insurance Corporation of Ireland because from the Insurance Corporation of Ireland, as my agent in this regard, he can get comparable terms with anything he might get elsewhere.

Senator Alexis FitzGerald asked why not establish a State company. The situation here is that I do not feel it justifies the creation of a State insurance company to cover the demands in this regard. This could be something that could be reviewed in due course arising from the use that is made of this scheme. One of the things of which we are aware is that the percentage of user of this at the present time is pretty small. Indeed, we will have to sell the scheme because of the necessity to ensure that our manufacturers and exporters are encouraged to insure so that they will be covered against the serious losses that could put them out of business in the event of their not being properly insured against this type of risk.

Senator Jack Fitzgerald drew my attention, by way of criticism, taking it from the reference that was made in the Dáil, to the Insurance Corporation of Ireland in relation to a completely different matter which is, I suggest, not appropriate to this Bill. The position is that a scheme has been drawn up whereby Irish exporters can be insured at comparable rates with others. If the State would appear to be turning over or earning too much profit out of this scheme, then naturally the premium adjustment would be made whereby the premiums would be reduced because, as I stated in my opening remarks, the object of the exercise here is to try to offer an insurance with State backing that will not lose money to the State. On the other hand, it is not the object to make profit from it. Therefore, if a profit is created it means that the State would then be in a position to reduce the premium rates. A surfeit of failures involving compensation payments on the commercial or political sides would, of course, result in increased premiums. The situation at the present time is that the Insurance Corporation of Ireland are able to offer terms comparable with, and in a number of cases better than, a number of State-sponsored organisations outside. I have endeavoured to cover most of the points that have been raised during the Second Reading.

Mr. Russell

May I interrupt? The Minister started out to answer a question of mine but he did not answer it. If two or more companies indicated their willingness to participate, what would the Minister have done in the circumstances? I think I also asked the rate of commission.

Mr. Lalor

I would then have to decide whether I would ask them to work jointly or whether I should have to decide against one. The situation did not arise. I think I would have been inclined to have asked both companies to see if they could handle this jointly because I would not want to have selected one rather than another.

Mr. Russell

That is the point.

Mr. Lalor

The question did not arise, but if it had I think I would have asked both companies jointly to handle this because I should not like to have to select one rather than the other.

Mr. Russell

It could be a consortium of two or more.

Question put and agreed to.

Agreed to take remaining Stages today.