Seanad Éireann debate -
Wednesday, 16 Jun 1971

Vol. 70 No. 5

Insurance Bill, 1971 (Certified Money Bill): Committee and Final Stages.

SECTION 1.

Question proposed: "That section 1 stand part of the Bill."

Mr. Alexis FitzGerald

The only thing I can talk about is the extension from £10 million to £30 million. It worries me to find that only one insurance company were prepared to take the direct risk. I am worried also about the extent to which the Minister has considered the degree of risk he is taking on because of this.

I regret that while the Minister was speaking I was chatting for a moment or two with my colleague on my left about what we are discussing here today. We all know that we are trying to improve the position of our exporters. I was endeavouring to clarify my mind as to the nature of the insurance that was being given—not by virtue of statute because the Minister can make altogether different arrangements. Here he is simply looking for power to increase his counter-guarantee liability to a sum of £30 million. One would have thought that his existing liability of £10 million covered by a net profit situation of £40,000 would have covered him for a reasonable period. Presumably documents will emanate from the Minister and go to the Insurance Corporation of Ireland Ltd., armed with which they will be able to make attractive their proposals to insure the risk of the exporter.

I should like to be clear on what is the risk. We seem here to be agreed that we are allowing the Minister to counter-guarantee, and he has told the Insurance Corporation of Ireland Ltd. to insure against the risk that the Irish exporter would not be paid on the export of his goods. It would be helpful to me, as I go on, to get confirmation that I am right in that. We are proposing to cover by counter-guarantee the risk that the Irish company which enters into a contract to supply goods abroad is able to get an assurance from the buyer that the buyer will pay. The buyer will pay a premium for that, which would be received by the Insurance Corporation of Ireland. Is this correct.

Mr. Nash

The exporter pays the premium.

Mr. Alexis FitzGerald

The Senator is quite right. The exporter is taking the risk when he enters into his contract for sale. He pays the premium, which is got by the Insurance Corporation of Ireland Ltd. There is no statutory right in the Insurance Corporation of Ireland to get this premium. It is simply the company, as the Minister has told us frankly in this House today, with which he is proposing to do this business. If the Insurance Corporation of Ireland Ltd. go out of business tomorrow, the Minister is free to enter into this arrangement with any other company.

The quality and the strength of the Insurance Corporation of Ireland Ltd. seem to me to be of enormous importance. There is the question of the rates of interest which will be charged to the purchaser and which the purchaser pays, as he will pay, by promissory notes, which under existing systems are taken up by banks or a bank. Because there is a direct Government guarantee, the rates of interest to the purchaser are lower. This type of precision in the measurement of risk goes on in financial circles. People take ¼ per cent on £10 million, for instance, and this is taking a risk. They measure what their percentage charge ought to be on the basis of the person who is directly obliged to make the payment.

The Minister, when he is considering recommending to this House an extension of the limit from £10 million to £30 million, ought to consider whether it should be a counter-guarantee or whether he ought to put himself in the position of, to put it frankly, the Board of Trade. The Board of Trade in Britain does not operate through a publicly-quoted stock exchange company to do this business, giving that company a turn; they do the business themselves. Because they are in the market directly as the insurer of exports the buyer can get his money. The rate of interest at which he has to pay on the promisory note is less because it is the British Government who are guaranteeing. It will not be the Irish Government who will be guaranteeing this. It will be the Irish Government counter-guaranteeing it, which is one remove, and we all know the difficulties of operating when something goes wrong with an intermediary, such as relying on counter-guarantees.

I hope I am not being invidious. I certainly do not intend to take in the Minister or any members of his Department, or anyone. The Minister should look at the quotation of the shares of the Insurance Corporation of Ireland Ltd. in the last 12 months and ask himself whether the expectancy of this legislation has not affected the value of those shares to the benefit of informed persons within the Insurance Corporation of Ireland Ltd. I am not here to be clapped for making that point. The creation, in effect, by ministerial decision, of a monopoly position for one publicly-quoted company is worthy of consideration by and on behalf of the public.

Mr. Nash

With great respect to my colleague, credit insurance is not a thing that any company willingly invite. If Senator Alexis FitzGerald can get any of his clients to look for credit insurance, even in this country, where they are selling goods and want to be protected against bad debts, he will not find many insurance companies rushing for that kind of business. There are certain types of insurance which need so much expertise and so much internal machinery set up that unless it is on a very large plane it will not pay at all.

Credit insurance abroad needs still more expertise. In all probability I should imagine that if an exporter in Ireland were selling to an importer in Germany, what an insurance company in Ireland would do is arrange an under-insurance with a company in Germany, because the first thing they have to be sure of and about which there must be no dispute is that the exported goods are up to sample. Otherwise, you will have the importer saying that the goods are not up to sample. Of course, they may be up to sample, but the point will be raised. As a result an offer to pay less will be made; the exporter will be kept out of his money. I should imagine that there would be an arrangement with a company in the import country who would examine the goods there, come to a decision about them, arrange whether payment is made or not and decide "You have re-insured with us; we shall settle up with you anyway."

Senator FitzGerald will also know that there are certain risks that are reasonably good ones, but they are not willingly undertaken unless they can be undertaken on a large scale. If I may be personal in something that affects both of us: for instance, take the insurance of professional liability by various professions. It is something that you get only one company—and one company only—to do, and to do very well. It is not something that the State could do without underwriting. It would be inadvisable for the State even to attempt it.

Mr. Alexis FitzGerald

It does it in Britain.

Mr. Nash

Only to a limited extent. Lloyds cover a vast amount of the insurance business.

Mr. Alexis FitzGerald

In relation to this particular matter it is done by the Board of Trade.

Mr. Nash

Subject to correction, I think that Lloyds in Britain do a very considerable amount of it. As far as I know, even an exporter in Ireland can insure with Lloyds against it. For example, at one time the livestock exports were done exclusively by Lloyds and they were charging up to 30s per cent for them. Then a company was started here and, as far as I know, the present rates are about only 5s per cent, that is one-sixth, which makes a big difference.

The exporter in Ireland will know that, although he is insuring with the insurance company in question, the Insurance Corporation of Ireland Ltd., for all practical purposes they are little better than brokers; and if he has a bona fide claim, ultimately the claim must be met by the Department of Industry and Commerce. Above all, it is important that it should be with the company, because there are various things that could arise. For instance, there is the exporter here—the exporter who is careless and who is not very particular about his own good name or the good name of his goods—who will export goods which are not up to standard and which are bound to give rise to trouble. There is the exporter who, knowing that it is a direct State insurance and that he is insuring with the State will not take the least trouble to inquire about the creditworthiness of the customer abroad. He is careless and slovenly in his whole approach to his business. This is the sort of contest in which the State could not possibly enter because to the State all citizens must be equal: the lazy man, the careless man and the industrious man must all be treated as equal.

Therefore, I cannot see that the State could do better than it has done in the interests not only of the good name of our export trade and exported goods, but in the interests of business generally. That is why I particularly welcome the Bill. I hold no brief whatever for the Insurance Corporation of Ireland. I could not even think of their name a moment ago. I particularly welcome the fact that it has been done through an insurance company who will be supervised.

Mr. Russell

I just want to raise a few points with the Minister. This credit insurance scheme applies only to goods exported: it does not apply to services of any kind. As the Minister knows, the term "exports" covers a very wide field other than purely physical goods. Even insurance itself is a form of export: shipping, tourism, certain financial deals or policies include invisible exports. I take it that these are not covered by the form of credit insurance. This refers purely to physical goods, machinery, and many items manufactured here or exported from this country. If that is so, is there any type of credit insurance for invisible exports of the type I have just mentioned and, if not, are they not worthy of consideration, too, having regard to their very important contribution to the economy?

In order that this scheme be effective it must be operated on a substantial volume, and I agree with Senator Nash in this regard. If the terms to the exporter are going to be competitive, they must be done on a very big volume. In his reply the Minister has not indicated what the rate of commission is. He might give us that information because there is a very substantial sum involved. I take it that this arrangement will be open, from time to time, to participation by other Irish-owned companies if they so desire. Some Irish companies may not participate, because they honestly feel that they have not the necessary expertise, which apparently the Insurance Corporation have in this business. But times are changing, the economy is growing and the insurance business is growing with it; and I should like to think that at some future date the Minister will be free to broaden the basis of his agents, either by a consortium of Irish-owned companies, or else by inviting another individual Irish company to do the business as his agent.

Mr. Lalor

First of all I pointed out in my introductory remarks on the Second Stage that, in addition to cover for commercial and political risks attendant on selling goods abroad on credit terms, similar cover was available for design and planning services carried out in Ireland in connection with engineering or constructional works executed outside Ireland. This is covered in addition to the selling of goods abroad on credit terms.

In his opening remarks, Senator FitzGerald made reference to the necessity for increasing the limit from £10 million to £30 million at this stage, in relation to the volume of business done. With reference to that, the volume of business at present would appear not to be sufficient to justify the raising of this ceiling now. The potential liability naturally fluctuates from time to time as policies expire and new policies are issued. As at 30th March, 1970, the aggregate potential liability under the policies in force at that time was £3.6 million, and it was £3.9 million on 30th September, 1970.

Even though the statutory limit of £10 million seems to leave a considerable margin for expansion, there is the necessity to raise it still further as the result of this new State-backed scheme which I have recently announced.

The commitment has changed quite considerably with the announcement of this new scheme. Originally only political risks were covered, but my liability will now include commercial credit risks as well as political risks, and this alone will raise the figure by another £2 million or £3 million. In addition, it is expected that the improved terms and conditions offered under the new scheme, particularly when they are effectively brought to the notice of exporters through the reorganised scheme of publicity which is an integral part of the working group's recommendation, should lead rapidly to an increase in the volume of exports insured.

I also referred on Second Reading to the hoped-for introduction by the banks in the near future of a scheme of favourable interest rates for exports of capital and durable goods. This bank scheme will require that the goods be covered by export credit insurance. Therefore, there is no doubt that demand for this cover should escalate and quickly exceed the £10 million limit within the next 12-month period.

Senator Russell wanted to know if the door is still open for any other insurance company. Senator Alexis FitzGerald pointed out that there is nothing in the Bill to prevent the Minister from reviewing the position at any time. The arrangement that I have made with the Insurance Corporation of Ireland is reviewable at 12-monthly intervals. In relation to what Senator Nash said a few moments ago, the position is that if there were two separate insurance companies involved, both splitting the cake in half with overheads the same, the amount of commission to be paid by me to them would have to be increased. The only alternative to opening the door to other companies would be the one that has been hinted at by Senator Alexis FitzGerald—the creation of a consortium whereby they would all get together, because the cost to the State in commission of a scheme which would have to be divided between two or three insurance companies would be greater than the cost of the one that I have arranged with the Insurance Corporation of Ireland Ltd.

Senator Alexis FitzGerald made the point that somebody somewhere looking at stock exchange returns noticed that the Insurance Corporation of Ireland Ltd. are in for a bonanza because of this arrangement they have with the Minister for Industry and Commerce. I do not want to say: "Not at all; they will be put to the skin of their teeth to operate this" because this could interfere in any negotiations or dealings I might have with them in an effort to close the gap or to arrange a commission. I am satisfied that I have made a reasonable commission arrangement at the present time. I do not think that it would be proper for me to spell that out, as Senator Russell asked me to do. It is subject to annual review in the light of how the scheme is operating. Anybody with experience of the normal operations of a Government Department would realise that I, through my officials, would be endeavouring to get the scheme done, not at the cheapest price, but with the greatest return to the State.

I am satisfied that the scheme we have in operation is quite satisfactory. It will be subject to annual review. This is quite satisfactory in view of the fact that, even at this stage, it would be impossible for me to say what my liability will be in 12 months time, because it all depends on how it appeals to exporters. Our object is to try to get as much cover for our exporters as possible in order that they will be covered against any potential commercial and political risks.

Mr. Alexis FitzGerald

I am not clear about a number of points. I am sure the Minister will be able to clarify my mind and the minds of other members of the House. Am I correct in thinking that the agent here, the Insurance Corporation of Ireland, Ltd., will be the payer of the commission, because they are getting the counter-guarantee under section 3 of the Insurance Act, 1953, which we are proposing to amend? The State are going into business, and have been in business and are extending their business, and will be getting a return for being in business, which I trust will be profitable and will appear in the public accounts. If I had the energy and sufficient wit I could have discovered, on examination of previous public accounts, the returns being received from insuring the political risk.

Should the Minister not be completely satisfied that his agent, even though he has a 12-monthly review arrangement, has the capacity to discern a good risk from a bad risk and to know what to exclude him from as a counter-guarantor, such as selling goods to some crook in Scotland? It is to be noted that the Insurance Corporation of Ireland Ltd. will not do this willingly, because there would be no benefit received through being involved in that; but what is the degree of experience of the Insurance Corporation of Ireland Ltd. in the matter of insurance of export relief? Why did the other companies get out of it? What is the cost of the monopolistic position which the Minister has chosen to establish?

Senator Nash spoke about the splitting of the commission. Where is the commission being split here? The commission, if I understand correctly, is being paid here to the Government. It is not a question of splitting commission that is being received; it is splitting commission that is being paid, which is an entirely different matter. It is a question of persons remaining in competition with each other in relation to a particular type of business. We must all recognise insurance business as a risky business. It is a case of knowing so much about your neighbour's child that you will not allow him to succeed. However, you know more about your neighbour's child than you do about a foreigner's child. There is obviously more risk in the insurance of the supply of goods or the proper payment for goods by a foreigner than there is in the insurance of Irish exporters.

The benefits of disappearing competition are very dubious to me. It raises questions as to why competitiveness has disappeared and what the effect of the monopoly position will be on the premium to be charged to the Irish supplier in relation to his exports. I think the Minister is right in not disclosing to the public what his arrangements are with the Insurance Corporation of Ireland Ltd. It would not be fair to that company and I do not think it is for the Minister to do so.

Senator Nash considered that the insurance business was not a business in which the Government should be involved. The British Government is very much involved in this business. It is not involved exclusively or in a monopolistic way but it is involved in a very significant way. It has developed, within the Board of Trade, the expertise which is directly available to the State because of the enormous liabilities that are undertaken by the State in relation to exports. Has the Minister carried out any examination of the degree of expertise available to the Insurance Corporation of Ireland which would justify him letting that company charge a premium to the Irish exporter which is not subject to any control? This is of great benefit to that company.

Senator Russell mentioned the insurance of exporters of goods. The Minister, quite rightly, drew attention to his observation that insurance cover was available for design and planning services carried out in Ireland in connection with engineering and construction work executed outside Ireland. Why has the Minister limited cover solely to that activity? Section 2 (1) of the Insurance Act, 1953, entitles him to—

make arrangements for the giving to, or for the benefit of, persons carrying on a business or profession in the State, guarantees in connection with the export, manufacture, treatment or distribution of goods, the rendering of services or any other matter which appears to the Minister conducive to that purpose.

Let me turn now to tourism. Take an equivalent case to Shannon Travel. The company, having booked many people into Irish hotels and having received moneys, becomes the ultimate debtor to the hotel with which it has made the booking. The Minister has power under section 2 of the Insurance Act, 1953, which is now being amended, to insure such persons.

Mr. Russell

May I develop that point a little further for the benefit of Senator FitzGerald? I intended to come back to that point. However, the Minister made a very courteous reply to my question about a non-goods type of risk, but it did not quite cover what I had in mind, which was the tourist industry. We are endeavouring to develop our tourist industry and have succeeded very well to date but nowadays many Irish people are going abroad on holidays. A situation could arise in which an Irish tourist company could book people into hotels in Austria but for some political or other reason—their bookings may have been disrupted or they may have suffered some financial loss or physical injury —they may not be able to honour that commitment. Can they be covered under this scheme?

Is shipping, which is an expanding service, included in the scheme? Shipping is a service which greatly aids exports and which we are trying to encourage very substantially. Unfortunately, our cargo shipping trade has gone completely. We are endeavouring to earn more income through the expansion of our shipping fleet and we have been very successful in this regard. Is our shipping service covered by this type of insurance? Let me return again to a point which Senator FitzGerald and myself have made. Are services, as distinct from goods, covered by this insurance scheme?

Mr. Lalor

The short answer to the point made by Senators FitzGerald and Russell is "no." However, that answer might turn out to be too short and be described as discourteous. The Senator quoted the Insurance Act, 1953, but that is for the purpose of encouraging exports. I would not wish it to extend to the export of tourists to Austria or other foreign countries. That would not be my idea of encouraging exports.

Mr. Alexis FitzGerald

The Minister wants to encourage the export of Austrians to Ireland?

Mr. Lalor

Agreed, but it will be for the Austrians to insure their people coming here.

Mr. Alexis FitzGerald

No.

Mr. Lalor

I am afraid I got myself involved in "dicey" arguments on previous occasions but on this occasion I shall adhere to "the purposes of encouraging exports". I do not know if the Senator was speaking of the sale of ships, but as far as the normal operation of ships is concerned there is a marine insurance system which covers them. If I remember correctly Senator Alexis FitzGerald mentioned something about the coverage of solicitors or something of that nature.

Mr. Alexis FitzGerald

That was just a joke.

Mr. Lalor

That is fair enough. I do not know whether he was actually suggesting that I should encourage the export of solicitors. However, Senator FitzGerald mentioned some other matter before he got on to the subject of solicitors.

Mr. Alexis FitzGerald

Expertise available.

Mr. Lalor

In relation to the arrangement made by the Minister for Industry and Commerce in 1955 when the scheme was started, there were four companies involved. After the very early stages two of these four companies withdrew completely. Down through the 1960s the Insurance Corporation of Ireland was the only company which was issuing policies in respect of both commercial and political risks. The State stepped in and accepted the transfer of the political risk and the company carried the commercial risk. This new operation is to carry both.

The Insurance Corporation of Irelnad has 15 years of constant experience of doing this type of job. One could logically assume that, arising out of that 15 years, that company has experience and expertise which no other company has at the present time. This is the straightforward answer to the point made by Senator Alexis FitzGerald. On the other point, the purpose of the 1953 Act is to encourage exports. This extra £20 million being provided at this stage is for the purpose of encouraging exports and not for anything else.

Mr. Alexis FitzGerald

Have the Insurance Corporation of Ireland, in the exercise of the expertise which the Minister refers to as having accumulated during the years as the sole trader in this business, been making profit from the employment of this expertise? What are the comparable rates of premiums? Does the arrangement which the Minister made, or proposes to make with the Insurance Corporation, put him in a position to prevent the monopoly which the Minister has very frankly told me he is giving the Insurance Corporation of Ireland being used to the disadvantage of the exporters and therefore to the disadvantage of the State? There is another point which occurs to me at the very last moment and which can be discussed at greater length on the Report Stage if that is thought desirable. There is a Bill going through, or has gone through, perhaps, with regard to guarantees in relation to foreign currencies. Is there any problem of this kind which can arise in this situation? I am really thinking aloud, which is a big mistake to make except in your family sitting room. Is there any possibility that this could involve any liability on the Minister?

It is the Minister's case really because we are not worried about the Insurance Corporation of Ireland as they will have to get consent from the Central Bank anyhow for any liability. Is there any possibility that under a counter guarantee the Minister may find himself asked to take up a position that he cannot take up because he has no power to pay in foreign currency? My impression is that this cannot arise. What he is going to count a guarantee is a receipt in Irish currency provided he takes control as to the type of guarantee he is giving to the exporter who may he required to take on liabilities in his contract which will be expressed to have to be discharged in foreign currencies, in which case the Minister will not have power under the legislation, as I find it, to pay the foreign currencies.

Mr. Lalor

Arising out of Senator FitzGerald's remarks, I should like to say that, in view of the figures I have given earlier today covering the political risk, the amount of premiums taken in and the amount of money paid out—£127,000 in over a period of 11 years and £112,000 out over that same period—the House and especially the Senator could not feel that anybody has made any great fortune up to the present time.

Mr. Alexis FitzGerald

I would prefer to see the State make more out of it.

Mr. Lalor

Yes, up to a point. On the other hand, if the State makes too much out of it in what has already been described as a monopoly situation there might be something else to say in that regard.

Mr. Alexis FitzGerald

The State is entitled to a monopoly.

Mr. Lalor

My understanding is that all moneys payable under the policies are paid in Irish currencies. The moneys payable under these policies will be paid by the Insurance Corporation of Ireland to an Irish company; therefore, the normal assumption would be that it would be paid in Irish currency.

Question put and agreed to.

Section 2 agreed to.

Title agreed to.

Bill reported without recommendation, received for final consideration and passed.