I would like to thank the House for the spirit in which they have accepted the legislation which is before us. I am very conscious that they have accepted the sense of urgency which accompanies this Bill.
The purpose of this Bill, which is of general application, is to amend existing insurance legislation by adding to the range of actions which can be taken to deal with situations arising in the event of uncertain solvency of non-life insurance companies.
In 1964 the Oireachtas accepted the principle that the State should not be responsible for the failure of private sector enterprises engaged in the non-life insurance market. At the same time it decided that it would be desirable to establish a compensation fund, to which all companies would contribute in accordance with their share of the market, and out of which eligible claims could be met in full. The details are set out in the Insurance Act, 1964. Subsequently, the United Kingdom Parliament introduced legislation to much the same effect, and similar arrangements now exist in other parts of the world.
While leaving the basics of the 1964 legislation unchanged, and it has worked quite well in the case of the collapse of the Equitable Insurance Company, we are now proposing a number of significant amendments. The House will recall that at the time of the Equitable episode, the view was accepted that, while arrangements should be made to compensate people who had claims for injuries or damage to property, those who had simply paid premiums and were going to be out of pocket only in respect of the unexpired period covered by the premium could be left to fend for themselves. With the greatly increased cost of insurance I feel that a different view ought now to prevail on this question and that people who have paid premiums should, in the case of a company being wound up, be entitled to present claims in respect of the unexpired period of their policies just the same as other claimants on the compensation fund. That principle is now enshrined in this Bill.
There is, however, an even more important consideration which arises in this connection, and, again, Senators will recall the experience of the winding up of the Equitable Insurance Company. At that time my predecessor secured an order of the High Court for the winding up of the company as it was clear that its affairs were beyond all hope of redemption. I do not think that any other solution would have been possible at that time. Nonetheless we must recall what the effects of the winding up order were. The position is that as soon as such an order is made, the policy holders, leaving aside entirely the position of persons having claims against the company for accident, etc., are no longer effectively insured and are thrown upon the insurance market to do the best they can in seeking replacement cover. Even in the case of a small company like the Equitable Insurance Company this caused considerable dislocation, and in present market circumstances it is clear that the consequences of the winding up of an insurer would be very serious indeed. Nowadays, insurance of certain classes is not something which is immediately available for the asking over the counter. Members of the insuring public are often, because of the cost and other considerations involved, obliged to make diligent enquiries to secure the best deal for themselves. We cannot contemplate the possibility of very large numbers of people, including many of whose livelihood depends on having insurance cover, left without insurance through no fault of their own, being sent from Billy to Jack with, possibly, the consequences that a significant increase in the number of uninsured drivers on our roads is brought about, a situation which, as the House is aware, places intolerable demands on all concerned.
It is primarily to deal with this problem that the present legislation has been designed. Its object is to ensure that while the affairs of a company in difficulty are brought within the purview of the High Court in much the same way as those of a company being wound up, its business can nonetheless be continued without interruption on a going concern basis by an administrator appointed by the court. It is a basic principle of company law that in an insolvent winding up the board of directors becomes defunct and its powers are assumed by the liquidator. This is in recognition of the fact that it is those in control who have the power to do harm. Their removal is therefore almost invariably an essential preliminary to any remedial action, and such removal automatically occurs on liquidation. In this Bill we are proposing to apply this and other winding up principles in the case where an administrator is appointed by the court, and it follows therefore, that, for so long as an administrator stands appointed, the powers of the directors will cease. In applying the winding up principles we have been very conscious of the scope for conflict between some of them and the discharge by the administrator of his main duty to maintain the business as a going concern with a view to placing it on a sound commercial and financial footing. There are obviously certain winding up provisions which would impede the administrator in such a task and these are being adapted or repealed to remove any doubt there may be about the commercial credibility of an insurer under administration.
I think it is important to refer specifically to one particular adaptation, the effect of which will be that — contrary to the automatic consequences of a winding up — contracts of employment, transactions, debts, proceedings etc., will not, by virtue only of the appointment of an administrator, be avoided, cancelled, stayed or otherwise affected. The underlying rationale, and it is important that this should be emphasised and accepted, is that the administrator of an insurer from the outset should be able to carry on business with as much freedom as is reasonable and that as far as possible only normal commercial rules and procedures apply, subject of course, to the entire proceedings being within the domain of the court.
To facilitate further the attainment of the main objective of this Bill, the Act of 1964, as we now propose to amend it, will give the administrator access to the compensation fund so that he will have the resources to meet claims on the company and to place it on a better financial footing for the future. The general mechanisms of the 1964 Act will continue to apply, with the fund's resources being provided as before by way of levying contributions on all non-life insurers.
The limit of £1 million on the size of the fund established in the 1964 Act is being removed. This removal has been dictated firstly because its significance has been almost completely eroded by inflation in the intervening years and, secondly, it is considered inadvisable to pitch the fund at a particular level in general legislation when the circumstances in which the fund would be drawn upon could vary substantially from case to case.
In order to facilitate insurers in their task of providing for their liability to the fund, the Bill proposes that the contribution by insurers will be limited to a ceiling of 2 per cent of premium income in any year. The House will appreciate that a contingent liability of this size could create some difficulties for insurers. It is only right therefore that the insurance industry should not be prohibited from providing for any liability to the fund in the premium rates which they charge. This is a principle which has already been well established. I think it appropriate at this point to record that the behaviour of the insurance companies in regard to their obligations under the Act of 1964 has been exemplary.
The net result of the new provisions to which I have referred is that policyholders will not need to scramble around looking for alternative cover, as their insurance will be continued, and the rescue of the enterprise can be put in hand under new management with the least disruption to its ongoing commercial activity.
Many non-life insurance companies have connections with other entities, whether by way of subsidiary or dependent companies for property and other investment purposes or by way of other associated entities within an overall group structure. In endeavouring to deal with the fortunes of an ailing insurer it would be inconceivable that the administrator should not also be in a position to exercise control over the affairs of any such entities. The Bill provides, therefore, for the exercise of such control by the administrator as is considered necessary for the purpose of successfully discharging his primary duties. The ability to act in relation to such bodies and the degree of control to be exercised will be subject to the sanction of the court. The Bill also defines the connection in such a manner that action could only be taken in relation to a body which is significantly linked with the insurer under administration. I must emphasise, however, that the inclusion of this element in the Bill is not to be seen as a vehicle for the extension to such bodies of the appointment of the administrator, with a brief to maintain them as going concerns and return them all, if needs be, to a sound financial footing. That would be totally impractical and unrealistic, and it would be unreasonable to expect policyholders to provide funds to rescue enterprises outside the insurance sector. On the other hand, it seems safe to make the general assumption that where the main enterprise in a group is being rehabilitated, the effects on connected enterprises must be beneficial.
A series of other consequential amendments is being effected to the Act of 1964 for the purpose of facilitating the successful application of the scheme I have outlined. The opportunity is also being availed of to repeal certain provisions of the Act of 1936 relating to the ownership of shares in, and the nationality of directors of, insurers. The existing provisions are discriminatory in the light of our obligations under the Treaty of Rome, and while they have not been applied against nationals of other member states in recent years, their continued presence in the statute book is not warranted.
I think it only right at this stage to inform the House that it is my intention, as soon as this Bill becomes law, to petition the High Court for the appointment of an administrator to take over the management of a certain insurance company whose affairs are in a state of considerable disarray. Since these proceedings are imminent and the relevant petitions have already been prepared, it would be inappropriate for me to go into further detail at this stage, but there will, presumably, be other occasions on which this matter can be debated in the House.
When one looks at the recent history of insurance business in Ireland, one is, I think, entitled to ask certain questions. Indeed events now happening in other countries also have their relevance. In our own case we had in the late thirties the mismanagement of a number of life companies whose funds, on actuarial valuation, were shown to be inadequate to meet future liabilities to policyholders. To deal with that situation the Irish Life Assurance Company was established by the State and I think we are entitled to say that it has been a resounding success. In 1963 the Equitable Insurance Company collapsed and it was clear that the most serious offences had been committed in carrying on its business. The 1964 Act resulted from this. We are now faced with a third problem.
To be fair, I am obliged to say that the affairs of insurance companies are, by and large, managed by responsible people who are fully cognisant of their duties to the insuring public. They cooperate fully with the Department in filing the returns required by law and in answering any questions which arise in connection with them. This is all very well as far as it goes, but it has to be recognised that, so far as the supervisory authority is concerned, the system still depends largely on the competence and honesty of those who prepare these returns and, even more so, on those professional people who certify the returns. Unusual vigilance is called for and, partly because of the complexities of Irish law, the process is not an easy one. Directly and indirectly, the various powers provided by the Oireachtas in regard to the supervision of insurance companies have been availed of relentlessly by myself and my predecessors in office, and the case which is now pending is the end result of the exercise of these powers. One can, I think, take it as a certainty that if the supervisory powers had not existed and had not been used, we would in due course have been confronted with a disastrous situation which would have been extremely difficult to deal with. What we need now is effective remedies to deal with certain situations brought to light by the supervision process.
The Bill now before the House provides a very desirable addition to the range of options available to the insurance supervisory authority. It provides an option which avoids the disastrous consequences of winding up and, although confined to a large extent within existing winding up law, it creates an environment which should allow of the resuscitation of an insurer while carrying on business in a normal fashion.
I would now ask for your co-operation in carrying this Bill through the House. Although it is a Bill that is not large in physical dimensions, a great deal of work has been put into it and it meets the requirements and aspirations of all parties in the House. There are people out there at the moment who need to be looked after and the object of this Bill is for us to do our best for them.
There has been a considerable amount of speculation during the day as to which company might be referred to in the Second Reading speech. I have pointed out that I am not at liberty to elaborate on what I have said to the House. There is a considerable amount of concern amongst policyholders, not confined to any one company and the purpose and the main objective of this Bill is to ensure, unlike a situation under the present law which will exist until this legislation is passed through this House and signed by the President, that policyholders are protected. In the circumstances that exist the Minister — myself in this case — would have no alternative but to apply to the courts for winding up proceedings. In those circumstances people who had taken out insurance would find themselves through no fault of their own left without effective cover.
There is also the consideration of a number of jobs. All too often in the recent past we have seen situations where liquidations were necessary and the people who were most severely affected were those who had absolutely no say in the management of policy pursued by those firms. It is my determination that this will not happen in this case, and I am sure that determination will be shared by all Members of this House.