Seanad Éireann debate -
Thursday, 13 Nov 1986

Vol. 114 No. 15

Report of Joint Committee on the Secondary Legislation of the European Communities — The Impact of Certain EC Legislation on the Irish Insurance Industry: Motion.

Mr. E. Ryan

I move:

That Seanad Éireann takes note of Report No. 24 of the Joint Committee on the Secondary Legislation of the European Communities — The Impact of Certain EC Legislation on the Irish Insurance Industry.

I would like to comment on this very interesting and worthwhile report which examines the position in Ireland in a comprehensive way. When I get around to dealing with the recommendations I will find myself in general agreement with them.

As the House is aware, freedom of establishment for insurance companies within the EC has been with us for some considerable time. There are many foreign companies operating in Ireland. Of the 35 companies operating here, 29 or 30 of them are foreign companies. Many of these are huge companies with very big resources with far more resources than the Irish companies. For that reason they are able to compete in the sense of being able to stand minor and major shocks and are able to cope with years where the claims experiences are very adverse. They can take these things in their stride in a way which is much harder for relatively small Irish companies to do. Approximately 50 per cent of non-life premiums at present are going to foreign companies. What we must be concerned about is that with the new directive which allows companies to operate here without being actually established here there is a serious danger that the 50 per cent going to non-Irish companies will increase further.

Not only have foreign companies an advantage in competing fairly but there is also the danger — I am not saying they necessarily do it or do it very often — that they can do what is the equivalent of dumping. They can give very competitive rates. This is particularly possible and useful so far as insurance companies are concerned because they normally have a kind of portfolio of policy and claim experiences. If it so happens that they find their experiences in other countries in fire, public liability or whatever insurance is very good at a particular period, then they are able to offer very low premiums in other countries. In that kind of situation a company doing business in many countries throughout the world would be able to offer extremely low premiums and rates in Ireland in certain sectors. This, of course, would have a very serious effect on the Irish companies. Without them doing anything wrong they would be able to offer rates in particular areas at particular times which would have a very serious effect on Irish companies which are operating in Ireland only.

One of the problems Irish companies have in facing up to the prospect of the new directive is the fact that they have gone through very difficult times in the past few years. This was caused among other things as a result of what happened with the PMPA and the ICI. What happened was that these companies for a few years before they went out of business were offering rates which were totally unrealistic and it was because they were offering rates that were totally unrealistic that they eventually went out of business. It also had the effect that other companies had to try to compete with them. Their rates went down, not as far as the PMPA or ICI, but down to such an extent that they lost business and found themselves making no profit for many years. The second effect of that situation was that a levy was applied which again undermined their finances.

The Irish insurance industry is facing up to the prospect of the new directive in what can only be described as a weakened condition. This makes it very difficult for them to face up to this potentially dangerous situation. If the foreign companies decided, deliberately or otherwise, to under cut their rates, they would certainly completely destabilise the insurance industry. This ultimately, of course would have a very serious effect.

One of the dangers is that new firms coming in here would start, without examining the situation, by charging premiums or rates which would be comparable with what they were charging in their own country, not realising that claims are very much higher in Ireland than they are in other countries. By doing this, of course, they would again destabilise the market. Subsequently when they realise their rates were too low they would naturally bring them up to a realistic rate. By that time they might have had a very serious effect on the native companies and put some of them out of business. These stronger companies would put up their rates and would get the very much larger slice of the business.

I want to emphasise again something which seems to be overlooked by many people when discussing insurance — the imperative connection between claims and premiums. For more than a year or two, premiums cannot be kept down if claims are not kept down. To look at it another way, if claims go up and are higher in Ireland than they are in other countries premiums will have to go up also. That is one of the things that has to be continually borne in mind when talking about the necessity of bringing down the cost of insurance or bringing down premiums. It can only be done if claims go down and claims are very much higher in Ireland than in most other countries. It was because of trying to ignore this fact that we had the position of the two companies who went out of business. We have to bear in mind the possible effects of the introduction of new foreign companies who will not initially, at any rate, be aware of the fact that claims in this country are very much higher than in most other countries.

Having said that it is not merely a question of the insurance companies — some people would not lie awake at night worrying about whether they stayed in business or went out of business but these companies play a big part in the financial and economic life of the country. When any of them go out of business there is a very serious effect on employment. At present, there are something like 5,000 people employed in insurance in Ireland. If the new directive is availed of where people can do business in insurance without having offices here it would be a situation where very few people would be employed to do that business as compared with the number who are employed at present.

That change would also have an effect on the funds available for investment in the national economy. At present these are very strictly controlled. Ninety per cent of the funds have to be invested in Ireland. It would be impossible to control the funds of companies operating from abroad. In very rough figures something like 1,000 million funds are generated by insurance of which 90 per cent is invested in Ireland. That could be changed very much in the future.

Of course, there are all kinds of other relatively minor spin-off benefits to the country for example, benefits to areas where local offices operate. Apart from employment the amount of money spent by these offices in rates, power, upkeep and so on, is of important benefit to the economy.

Looking at the impact the directive will have, there is little doubt but that Irish insurance companies and, consequently, the economy, will be adversely affected. What we have to look at is the question of how far they will be affected and what can be done to limit the effect. It would be unrealistic to expect that it will have no effect whatsoever.

The form of the directive is very important. It is very important to make sure that the graft is done in such a way so as to avoid as far as possible, adverse effects on the industry. It will be very important to have a derogation to allow the industry to recover from the effects I mentioned earlier to recover from the number of years where companies have been forced to operate at uneconomic rates because of the unrealistic rates quoted by the companies who went out of business and also because of the fact of having to pay levies to pay for the collapse of these companies.

There are a number of other matters the Government should bear in mind in approaching this problem. I would like to quote from the report made by the Irish Insurance Association in relation to this directive.

At page 20, they state:

(i) A substantial derogation must be negotiated for the Irish market.

(ii) Both established and non-established insurers must compete on equal terms. This would mean that both should be subjected to the same general rules and laws and in particular laws or rules regulating investments abroad (e.g. Exchange Control) contributions towards guarantee funds, government levies, etc.

(iii) Rules in the Directive and-or our own legislation implementing it must restrict the ability of services insurers to use persons established in Ireland to carry out certain duties on their behalf. In particular, we feel that a services insurer should not be able to delegate to such persons power to settle claims on its behalf.

(iv) Provisions must be incorporated in the Directive to deal with cases of dumping or unfair competition. The Directive, we would suggest, should define what constitutes dumping — unfair competition in the insurance sector.

These are all matters which the Government should bear in mind and every effort should be made to ensure that they are observed. If that is done, some of the more serious effects of the directive on services could, if not entirely avoided, at least be minimised.

One of the problems is that insurance companies coming in here from abroad may not realise at first the high level of claims. This is something which is of course a fact of life — and it certainly has been a fact of life. The Government could play some part in trying to deal with this problem. There are a number of reasons why claims are high. It is something that has gradually grown up and norms have been established which are difficult to interfere with at present. These norms are, unfortunately from the point of view of people who pay premiums, approximately twice as high as in the UK. The awards of damages are, by and large, something of the order of twice what they are in the UK even though they have varied over the years. The damages usually have a bearing on the costs and consequently, both the damages and costs are very much higher than in other countries.

There is also another reason why insurance is so high, and that is because of uninsured drivers. This has been estimated as being something of the order of 20 per cent. In other words, 20 per cent of the premium paid by the motorist who does pay insurance represents the subsidy he has to pay to make allowances for the number of people who do not insure their cars.

The Government have introduced a Bill which will probably have some effect on the high awards of damages and costs. It has taken some steps in relation to uninsured drivers and as far as they go they will be very helpful. It is essential that the powers taken by the Government should be pursued vigorously by the Garda to ensure that everybody on the road at present is insured. With the necessity of having a tax disc it should be reasonably simple to ensure that anyone who is not insured should not be able to continue to drive. This is a very serious matter and something which I am hopeful will be improved dramatically in the next year or two. Something like 20 per cent of people in Ireland are uninsured compared with something like 3 per cent in other European countries. That is one area in which we can look forward to a very considerable improvement.

In general, the recommendations made by the Joint Committee are very good and helpful and I am in general agreement with them. The Government can do something very positive in relation to recommendations Nos. 5 and 6. Recommendation No. 5 states that:

Consideration should be given to the provision of tax relief on the annual increase in the minimum statutory insolvency margin.

This is a technical matter but it is very important to insurance companies that when they have to put by funds in reserve to deal with the solvency margin they should not be taxed on that. It is not something that will go towards paying out anything to shareholders or anything like that; it is a technical necessity. It would be very helpful if the Government could look at that recommendation.

Recommendation No. 6 states:

The extension to the non-life insurance industry of the 10 per cent corporation tax should be considered.

There seems to be no reason why the same relief should not be shown to insurance companies as being shown at present to industrial manufacturing concerns. This is particularly so if the insurance industry is to be given every opportunity and encouragement to extend its activities to other countries, in which case it would be the same as exporting goods. In these circumstances, they should have the same treatment as manufacturing firms.

The recommendations of the joint committee are extremely useful, with which in general I agree fully. I hope the Minister will give them very close attention and implement as many of them as possible.

Mr. J. Higgins

I should like to join with Senator Ryan in commending the recommendations and the points set down by the joint committee. In producing this report the joint committee have done a very good day's work. The report was produced on 18 December 1985 and unfortunately it was virtually 12 months lying around before it finally got into this forum.

In the report it is quite obvious that the alarm bells are sounding and that there is a certain amount of panic, worry and anxiety within the insurance industry in relation to the liberalisation measures proposed. As Senator Ryan said, the measures in question are Council Directive 73/240 which abolishes restrictions on freedom of establishment in business of direct insurance other than life insurance and Council directives 78/473 on the issue of Community co-insurance. There is a proposal for a directive on the co-ordination of laws, regulations and administrative provisions relating to direct insurance, other than life insurance, and laying down specific provisions for the freedom to provide services.

Quite obviously, the joint committee met all of the interested bodies, the representatives of the insurance industry and the various departments involved in monitoring and regulating insurances. There seems to be general unanimity, having heard all the submissions, that the insurance industry as a whole is far from prepared to meet the anticipated onslaught that comes when there is deregulation, when barriers and prohibitions are taken down and when there is liberalisation.

It is a well-known fact that one of the main reasons for the UKs entry into the EC was because the insurance industry in the United Kingdom saw in Europe as a whole, and in Ireland as a component of the European Community, vast opportunities to expand their insurance business. They are the leading lights in this field of enterprise. Quite rightly, everybody in Ireland fears the accession to the Irish market of the UK companies.

The insurance industry has been a good one in Ireland. It has been good in terms of the service it has provided and of the high degree of employment it has provided. The insurance business in the Community is vitally important also. The report points out that:

By 1980, the EC accounted for some 30% of total world insurance business and had a growth rate above the OECD average over a period of 20 years.

Insurance, therefore is of very considerable significance and importance in the UK and of very limited significance in other countries — for example, in Greece. There are great variations within the Community.

In Ireland, as in the UK, the industry has been much less regulated than, for example, in Germany. In most member countries, the insurance industry is well entrenched. This has raised many difficult problems and conflict of interest in the context of the Community's objective to bring about harmonisation and co-ordination of laws and practices to facilitate freedom of establishment and services. Before Ireland's accession to the Community, the main statutes governing the operation of insurance here were the Insurance Company Act, 1909, the Insurance Act, 1936, and the Insurance Act, 1964. The 1936 Act gave the Minister power to set up a company to which it would be obligatory for direct insurers to offer their non-life business by way of reinsurance. The Insurance Act, 1964, which was again supplemented by the Insurance No. 2 Act, 1983, provided, inter alia, for the establishment of a compensation fund to cover the claims and liabilities of insolvent insurers in respect of Irish policy holders.

Legislation also enables the Minister to control premium rates. Section 107 of the Insurance Act, 1936, provides that the Minister may fix maximum rates of premium in employers' liability and mechanically propelled vehicle business. To date the provisions of this latter Act have resulted in control being exercised over fire and motor insurance rates. It is quite obvious that the coming into operation, in 1976, of this directive was followed by a large increase in the number of companies writing non-life business. The high interest rates in the late seventies and early eighties, the escalation of insurance claims, the increases in the level of personal injury awards, the ridiculous awards being made by juries and the rapid technological change, all of this has brought a great collective pressure on the insurance industry. It is obvious that the insurance industry has been further weakened by poor trading results in recent years coupled with inflation and all the cost factors I mentioned earlier. Therefore, it is with pleasure that I support the recommendations made by the joint committee who, having heard the submissions from all of the interested parties, have set down a number of very important, very laudable and very necessary recommendations which should be taken into consideration by the Minister in relation to the overall regulation, monitoring and administration of the insurance industry.

There is a case for a derogation for Ireland in respect of the draft services directive. This should continue to be pressed in the instances of the council. The Minister for Industry and Commerce and his Department should keep their regulatory structures under constant review in order to ensure that these are adequate to discharge their monitoring and surveillance responsibilities, particularly in conditions of free provision of services.

Recommendation No. 3 is important, in that the Department of Industry and Commerce should ensure that annual returns are promptly published. The point highlighted by Senator Ryan concerning the extension to the non-life insurance industry of the 10 per cent corporation tax should also be considered. We owe a debt of gratitude to the insurance industry, to the people who have administered it and managed it. It has provided a good service but it is obvious that in its present state it is too feeble to face the onslaught which we can anticipate when these regulations and liberalisation measures come into effect.

Mr. Daly

I am sorry that I have to disagree with the two previous speakers about the insurance position and about this derogation, which the Government should not be looking for. The sooner these people come in the better. Insurance, which should be a basic service to business, at a low cost, has become a very emotive issue due to spiralling premium costs and increasingly restricted availability. People who run businesses or cars have a lot on their plates. They have to cope with the consequences of endemic recession, including poor demand, grinding taxation, high costs and crushing rates of interest. This week we have had a grim reminder of our interest rate problems, with the prospect of more to follow. Why should we have to cope with unreasonable insurance costs on top of all that?

Insurance cover for a business has now become a major issue due to a number of inter-related factors. Firstly, the insurance industry in Ireland was cocooned in a protected home market for 40 years prior to EC membership. In the years preceding our accession to the EC and the years immediately afterwards, our insurance companies carried out no strategic planning for changing circumstances. When other EC-based insurance companies opened Irish offices in 1976 we had the response of cut throat competition among insurance companies for a few years which Senator Ryan spoke about. I agree that cut price insurance is not the answer; the answer I am looking for is a reasonable price insurance.

This phase was followed by panic reduction on the part of the insurance companies to mounting losses. The pendulum swung the other way. People found themselves at the receiving end of massive premium increases. A further EC development is pending. The EC Draft Services Directive is due for implementation in 1988, which would enable any EC based insurance company to accept business here without the need to open a branch office in Ireland. I agree with that. One of the big faults of the insurance companies is that there are too many offices. We talk about the Irish industry. What we mean by the Irish industry? Are we talking about our own Irish companies or about all the English companies and Swiss companies which have come in here? My heart bleeds for the insurance companies when I hear people complaining about their mounting losses and the sad position they are in. This Government has offices in Setanta House. Around the corner is Norwich Union and Irish Life. Who owns all the big offices in this country? The insurance companies. They are not Irish insurance companies, there may be some but very few.

Do they deserve this protection? I do not think so. If I ran my business in the way the insurance companies run theirs I would deserve to go under. It is time we had a completely different tune from the insurance companies, and an end to their attempt to throw the blame for their own failure on to everyone else.

Senator Ryan mentioned two companies one of whom was the PMPA, who caused havoc in this country when they went into liquidation. They were driven to that for the sole reason that they had a network of garages which is no part of an insurance company. They are the only insurance company in this country with garages. I do not know of any insurance in the UK which has garages. PMPA also went into money lending and they caused havoc to both sections. It is time we heard the last of PMPA and their troubles. They are now back in business. They were able to close one day and open the following day. They still did not get rid of their garages. They have ten garages at present and they are losing a lot of money. I am in the motor business and they are not competition to me and never have been. I have no axe to grind personally. But I see the damage they are doing to the people in business and I saw what they did with their money lending office and their insurance and as a result of that everybody is levied today. There is a levy on every insurance company, paying off some of the debts — only some of the debts — of the PMPA. That will continue for many years to come. The sooner we get these other companies to come in and create competition the better. The Insurance Corporation of Ireland also caused havoc. They ran their business reasonably well in this country but they had offices in the UK and they were known to take risks that any other company would not take. They were a soft touch for anyone who wanted a dicey claim or a dicey risk cover.

Of the number of claims which reach legal proceedings only 20 reach the court and they are decided by a jury. About 98 per cent of claims are settled out of court. For that reason, whatever one might say about the legal system, to the extent that some of the complaints are justified, it is not a major factor in the picture painted in the report as is the essential problem of the high cost of insurance. The report acknowledges that there are many factors contributing to the high costs. It sets out some very interesting conclusions. It is a very interesting report. It combines a lot of essential information and it makes its recommendations. Insurance companies as well as small businesses would welcome a determined effort to address the problems which are leading to high insurance and they would be very glad to co-operate in every way. Insurance, which should be a basic service to business at a low cost, has become a very emotive issue due to spiralling premium costs and increasingly restricted availability. People with businesses to run have a lot on their plates.

The second factor affecting the insurance issue is the growth in what some people would call litigation consciousness and what others would describe as the gravy train mentality. That may be attributed correctly to my own County Kerry. The late John A. Costello, a senior counsel, a very able man, had a very warm spot in his heart for the people of Kerry because he said they were one of the greatest counties in Ireland for litigation. In Kerry they had no greater desire for litigation than the insurance companies. In many cases the insurance companies, notwithstanding the fact that about 99 per cent of cases are not reaching the courts, have incurred heavy legal costs before they settled their cases often on the steps of the courthouse. Much of this could be avoided.

It could be avoided, in the first instance, by simplifying motor insurance. I know all motor insurance companies have to protect themselves and, the law being very tricky, they have to cover all loopholes. However, we have a system whereby you fill a proposal form, you are quoted a premium, you get a temporary certificate, you pay your money. The temporary certificate varies, depending on the company, from 15 days to one month. Before the policy reaches you, which is usually five to six months afterwards, you get a number of these temporary certificates and, while all this is going on, each of these transactions has passed through their legal department. I do not think it is beyond the legal profession to devise a system whereby a person could go in and have the particulars filled in on a card, as when you apply for a taxation disc, and have provision on the back of the card for a record so that, if the person has an accident, it is recorded. When that person renews his or her insurance at the end of that year, the record will be there. All the legal jargon and all the documents are unnecessary. There is enough protection for the companies. They know all the Acts and they could cut out a lot of this. That would help to make insurance cheaper and easier to get.

In other countries they have a knock-for-knock system, not the knock-for-knock system we have here but a system where there is no fault, and no matter who has the accident the company pays and there are no legal expenses. That is all recorded and when the person who caused the accident goes to renew his or her insurance, the company can assess the driving record, the risk and the cost of an insurance. I know about claims because I am in the motor business and I have been in court very often giving evidence on the mechanics of cars as a witness for insurance companies or for the other side, either for the person who caused the accident or the person who suffered in the accident. I know that in some cases they could settle a claim for a couple of hundred pounds. The point is that, if they repudiate liability and go to court and win, they could spend thousands of pounds trying to save a couple of hundred pounds. That to me is crazy.

The feeling has grown, too, that if you have grounds for a personal injuries claim, however spurious those grounds might be, then you are on a winner. You lodge your claim, you pile on the alleged injuries and the amount of damages sought and you threaten legal action in the belief that the whole system is on your side and the insurance company will pay up rather than go to court. That is an irresponsible attitude but it has grown in recent years because it is seen to deliver.

I know of a recent case where a taxi driver skidded into the back of a car at traffic lights. He broke the tail lamp lens but did not do any other damage. He got out and asked the other driver if he was all right and he was. He showed him the damage and said he would pay for it. He asked the passenger if she was all right. The passenger said she was but a week afterwards he got a solicitor's letter and there was a claim for £10,000 for whiplash. The woman said she had suffered whiplash. The taxi driver said this was only put on and that the least they should do was to get her examined medically and go through the formula. He did not want to lose his no claims bonus. The solicitors' letters started flying, the barristers came into it and then the writs were issued and the company settled for £7,000. There is no doubt whatever that the person who succeeded in that claim did so because the insurance company settled on the steps of the courthouse as they did not know what it might cost them if they went in.

That is an appalling situation and it is one of the reasons I support the abolition of the jury system. The legal profession are against that. It is only natural that they will not deprive themselves of a lot of revenue and business so they turn their back on the abolition of the jury system.

The third main factor in the insurance business is the courts system. If you want an indication of our increasing litigation consciousness, turn to page 23 of the report.

There has certainly been a major increase in the number of High Court jury actions disposed of in recent years. In 1978 there was 1,555; in 1982 there was 2,328, in 1983 there was 3,107; and in 1984 there was 5,725.

Although these statistics encompass all jury actions disposed of by the High Court and there is no breakdown available of the various categories of cases, it is reasonable to assume that Liability cases figure prominently in increased jury workload of the High Court.

There is also an extent to which increase in the jury caseload disposed of reflects an increase in the number of High Court Judges.

However, the three and a half fold increase in jury cases between 1978 and 1984 mainly reflects a substantial underlying increase in the general level of litigation.

There are those who would say that the Courts system is a licence to print money for the legal profession.

Certainly our own work on this report indicated a need for the complete overhaul in the way the Courts conduct their civil business. The wigs, the gowns and the antediluvian Court procedures have no inherent right to preservation order against the 20th century.

I would oppose derogation for these companies. They are long enough in business. There are only a few Irish companies but there are many other companies and I would welcome the competition. I would welcome also insurance at a reasonable rate. A young girl who buys a secondhand car — it is her first car — and goes to an insurance company. She has a full driving licence and she is asked for £1,400, almost more than the car cost. That is one of the examples. Motor insurance is prohibitive in this country. Unless something is done about it people will continue to drive with no insurance. There is no doubt that the numbers will increase.

The fact that there is a disc on the windscreen is a help, to a certain extent, but then on the other hand it is misleading. I often wonder if it is the correct thing to do. I do not think it is correct to have a disc on the windscreen. I discussed the matter with the Department of the Environment. When that disc is on the windscreen the person who owns the car and to whom the disc is issued may be the only driver who is covered by insurance. A member of the family or a friend can get a loan of the car. There is a Garda check point; the Garda look at the disc on the windscreen and say the car is insured and wave it on. The person driving the car may not be insured at all. The owner of the car should have the disc in his pocket. If he has other drivers named in the policy they should have a disc in their pockets. Then there would not be any misleading of the authorities by having this disc on the windscreen.

Another practice prevalent in Dublin is stealing these discs from the windscreens. They had already been stealing tax discs and now with the stolen insurance disc which they can stick up on their car they have carte blanche to drive so far as the law is concerned until they have an accident and find out then that their liability is not covered. This matter should be reconsidered.

Mr. McDonald

I am glad of the opportunity to make some brief comments on this very important topic. The joint committee devoted considerable attention to this report. The only point on which I disagree with them is on the point of derogation. I do not share their view that we should be pressing for derogation. We are entitled to have the Irish insurance industry compete. It is unfortunate that in the past five years a number of major insurance companies have folded up or have become insolvent. It is unfortunate that the person who is paying for insurance cover has to keep the lame dogs on the road also. There is a special levy imposed to have a continuing salvage of the PMPA debacle.

The difficulty with the ICI, which was owned by the Allied Irish Banks, is not completely settled and the onus is on the State, or indeed on some of the insurers, to subsidise that on-going saga. As has been correctly mentioned by Senator Daly, the exorbitant fees that insurance brokers and insurance companies ask from young people is a farce when one considers that such a high percentage of the population are under 25. I suppose the only young people who would be driving would be those between 18 and 25. The cost of having these young people insured even if their names are only added to the family car insurance policy is prohibitive. There is quite a difference in the cost of insurance premiums and loadings from one company to another. Some companies do not inflate the cost of the insurance premium if the young person involved has only a provisional licence but if he has a full licence and is under 25 the price shoots up. I accept that if a young person had an accident and if it has been proved that additional costs had been incurred or that they have not been careful, the company are entitled to put on the appropriate loading but to penalise the complete population of young people in a money-grabbing exercise seems extraordinary. This is one area where the young people need a clean break.

It is difficult, especially in rural areas, to find employment. The more active and dedicated people are prepared to take a job wherever they get it but if one lives in a rural area, in general there is no public transport and if they must get to their place of work they must provide themselves with transport, whether that be a car or motorbike. As has been pointed out, it is possible for a young person to acquire a car and have it taxed without too much money being involved but when faced with a bill in excess of £1,000 for third party insurance, they would be in much difficulty. The line should be drawn in this respect. If the State is to underwrite these private companies it should move fully into the insurance industry and provide insurance cover for people in the category of third party and theft and have it part of the normal taxation system. With computerisation this process should not necessarily incur additional costs on the Exchequer. A simple statutory insurance cover such as third party could be part of the taxation code at no additional administrative cost to the State. I am sure the Minister and his Department could work out something like that.

There are plenty of jobs, clerical positions and so on, available in industries but at extraordinarily low wages, possibly no more than is paid under the social employment scheme or the work experience programme. But if one is living in a rural area one cannot expect to find employment like that at the doorstep, a young person could not be expected to pay for accommodation out of such small wages. It is possible for the family of a young person to buy for him an old car that would be in good mechanical order and at a reasonable price. I hope the new Minister with responsibility for this area will devote his mind to reviewing commercial companies who are propped up by the State and who are ripping people off. I hope he can devise a system that will give the youth of this country an equal break.

The Joint committee in their consideration of this problem and indeed in their report have highlighted the areas they were concerned about. They have made nine very important recommendations that are recorded in page 19 of the report. I hope the Minister will be able to take those on board and consider them very carefully. In its conclusion to this report the joint committee say and I quote:

The Joint Committee, conscious of the crucial role of non-life insurance within the financial services sector of the economy and of its importance in terms of employment and investment, views the prospect of the implementation in Ireland of freedom to provide services with concern. The Committee believes that, even in the worst hypothesis as far as time-scale is concerned there is considerable scope for action by the industry to prepare itself to compete internationally, and to protect its share of the home market. It is doubtful, however, that, starting from a weak base, the industry will, by its own unaided efforts, be able to gear itself for the competitive impact of a services regime. For this reason, the Committee recommends that tax concessions already available to another services sector in Ireland and to non-life insurers in two of the Member States be extended to the Irish non-life sector. In view of what is at stake, the Committee trusts that its recommendations will be given the most serious and sympathetic consideration.

The joint committee have been very dedicated in their work and role. This is report No. 24 and the problem with all these reports is in finding time in both the Dáil and this House to have them discussed adequately. Nevertheless, that fact alone should not take from the importance of the work and the efforts of the joint committee to highlight the problems and to draw attention to the areas where, if we had greater harmonisation of the European laws, they would bring considerable benefits to the ordinary members of the Irish public. I hope the work of the joint committee will not be lost on the Minister for State. I certainly wish him well and we will give him the support he requires to improve the situation as far as insurance is concerned.

It has been a very frustrating experience for many people who had the daunting and voluntary task of organising the social employment scheme and the Teamwork scheme in every county, parish and barony in this country. Many of them experienced great difficulty in getting adequate public liability cover for their voluntary task force in order that schemes of public utility could be undertaken and carried out successfully. It is most infuriating to find that sections of this industry rely so heavily on State assistance and subvention that they have endeavoured to milk the voluntary organisations with demands for exorbitant premiums to get the schemes under way. That frustrates the work of the Departments which have co-operated and joined together to put these schemes into operation. They have proved successful. It is extraordinary that one sector of industry can play such a devastating role in frustrating the worth-while work of so many dedicated people, both civil servants and politicians, who have given thousands of young people a chance to set themselves up in business in Ireland. They have introduced thousands of young people to the work ethic and work code and set them off on worth-while courses in Ireland.

Mr. A. O'Brien

I believe there is much to be concerned with in the report of the joint committee dealing with the insurance. The main causes of concern have been outlined by other speakers and I do not wish to dwell on them for long. I should like to point out that the matters of concern to the joint committee are very clearly expressed and it is only right that they should get serious consideration because all the indications are that in many ways we could be at a loss.

It is true that in regard to membership of the EC Ireland could be an open hunting ground for these continental companies. We would be very much in the role of the small duck in the big pond. The committee expressed the view that it could be possible that these outside companies might cream off the best of the insurance business and leave the less profitable part of it to the home-based companies.

Another point made in the report was the consequences of the outflow of capital from Ireland in the form of premiums, which would be injurious to the economy. I would point out that if services were provided from abroad without offices being opened up in the State that would result in a loss of employment for people engaged in the insurance industry. Paragraph 34 of the report states:

A matter of particular concern to the Committee is that provision should be made to guard against an excessive degree of selectivity on the part of insurers, to ensure that insurance is available, within reason, for all risks and not just for the good risks.

I do not intend to go on any further on that point except to say I hope due consideration will be given to the items of concern noted by the joint committee. If this is the development which we as a member state of the EC cannot prevent, we should get a fair period of time in order to adjust and to gear the industry in Ireland to compete.

Minister of State at the Department of Industry and Commerce (Mr. R. Bruton)

I should like to thank the Senators who have contributed to this debate and indeed to the committee for drawing up the report. It is regrettable we have not had an opportunity to discuss these recommendations earlier but I am glad, nevertheless, to be here now and perhaps they may be more relevant than ever in the light of recent developments in the EC, particularly in relation to the present hearing before the courts.

Essentially the report of the joint committee relates to the draft non-life insurance services directive. They noted with concern that the industry was unprepared for the opening-up of the Irish market in 1976 by the implementation of the first non-life establishment directive. The committee are exhorting the industry to "accelerate and intensify the steps it is taking for the operation in a full services régime".

This recommendation is very appropriate at present. The insurance industry must face up to the prospects of EC insurers doing business in our market on a services basis. Certainly, we have sought a temporary derogation from the implementation of the directive in order to allow the Irish industry time to adapt and I note that the joint committee supports this request.

Indeed, my Department are very conscious of the difficulties the insurance industry has been through in recent years. However, we must be realistic about this and "temporary" is the key word in any derogation we secure. We cannot ignore our responsibilities under the Treaty of Rome which require the free establishment and the right that the Irish market be opened to "services" insurers eventually. We should be acutely aware of the possible effects of the ruling in the European Court of Justice in the coinsurance cases, brought by the commission against Ireland, France, Denmark and Germany. This directive was implemented around 1978 and the way in which those four countries including ourselves implemented that directive was to require leading insurers to be established in the State. That was challenged by the Commission and the opinions of the Advocate General, Sir Gordon Slynn on these cases delivered on 20 March 1986 have signalled the possibility that freedom of services may be a reality much sooner than might have been expected previously. It remains to be seen what line the European Court will take in its ruling on the cases. Nevertheless, the opinions of the Advocate General should lend fresh impetus to the Irish industry's preparations to meet new competition. People should be aware that the Advocate General's opinion has carried enormous weight in the past in rulings that finally emerged.

On the issue of the negotiations on the Directive, which have been temporarily halted since 1984 pending the outcome of the court case I have just mentioned, these negotiations are likely to resume in the near future. Our interest in these negotiations will not be limited to the question of a derogation. We will be particularly concerned to ensure that the Directive provides for adequate powers to supervise to a reasonable degree those insurers who decide to cover Irish risks on a services basis and we will also need to ensure that we will be in a position to apply appropriate sanctions to such insurers who do not observe relevant Irish laws.

There are other concerns also relating, for example, to the accounts and information to be supplied to the supervisory authority in the host country, the clear definition of insurance written on an establishment basis and insurance written by way of free provision of services. It is also a major concern that liabilities associated with Irish risks, taken on by EC insurers on a services basis should be matched by assets denominated in the same currency.

I turn now to the actual recommendations which the joint committee made in the report, some calling for action by my Department, some relating to the activities of other Departments, and some relating to the insurance industry itself. In so far as the recommendations that deal with my own Department are concerned, action has previously been taken and we intend to take further steps as appropriate.

The particular recommendations were first on derogation. I have already said we have sought a derogation from the implementation of this Directive. This will continue to be reviewed in the light of any changing circumstances, particularly in regard to the European court finding.

My Department have already taken action to strengthen their resources in the insurance supervisory area. Earlier on this year a detailed independent review of the non-life insurance supervisory procedures of my Department was completed. The review included an assessment of the frequency and quality of the information required from insurers and of the technical capacity of my Department to assess such information. I am pleased to say that the review has endorsed the supervisory methods used to date and has recommended a number of detailed developments of those procedures which will be implemented in conjunction with the new computer system due to be installed in the insurance section later this year.

We can expect that access to computer facilities will speed up the supervisory process and highlight areas of concern at an earlier date and will also allow for a more detailed and in-depth analysis of accounts information, particularly in the area of monitoring the adequacy of provisions to cover the cost of claims.

I am concerned that my Department should have access to statistical and actuarial expertise in examination of accounts and other information supplied by insurers and we will be recruiting two actuaries for this purpose. In the meantime, we have access to independent actuarial expertise when needed. Senators will be aware that we have circulated the insurance Bill in 1986. This Bill will strengthen my powers and give legislative force to some of the informal procedures already in place. It will also adequately cater for present and future needs in the area of supervision.

The committee recommended that my Department should ensure that annual returns of all authorised assurance companies in Ireland are promptly published. These returns are published each year in the summary of statements of assurance business or "Blue Book". It is official policy to aim to have the blue book for each year of account published as soon as possible, and in any event not later than December of the following year. Publication of the blue book has been delayed in recent years by factors totally outside the Department's control such as the placing of PMPA and ICI under administration. It is intended that the 1985 blue book will be published by December 1986.

I cannot comment on policy on exchange control since this is a matter for another Minister. I can say, however, that exchange control, or the absence or reform of it, has more relevance to competition across national boundaries in life assurance. Freedom of services in life assurance is some way off, but it would certainly require a counterpart exchange control directive to give effect to it. One could not expect life assurers in one country, where investment opportunities were restricted, to be able to compete on the same terms with life assurance companies in another state who had the facility of a world wide investment portfolio.

As for price control, this has been lifted since January last. Insurers are now subject to a less stringent notification procedure. I note that one insurer has suggested that lifting price control will probably lead to more competition in the market and lowering of some rates: I certainly favour that. In any event, my Department will continue to monitor premiums charged in order to ensure that policyholders are not hit with excessive or unjustified increases. Indeed it can be said that when we had price control our experience was not very encouraging.

Recommendations 5 and 6 deal with the question of tax relief. Initial discussions took place earlier this year between officials of my Department and representatives of the non-life insurance industry on the question of providing tax relief to insurers to assist them in funding their solvency margins. Certain proposals in this regard were put forward by the industry representatives and a number of suggestions on these were made by my Department.

At present, my Department are pursuing the matter with the Department of Finance both in relation to the policy issues involved and the efficiency of the proposals in an operational sense. While decisions on this recommendation do not rest with my Department, we are supportive of the recommendation generally. It is important that the insurers have the capacity to provide themselves with adequate solvency cover and the proposal of a contingency fund which is at the back of recommendation No. 5 sets about achieving that. I am aware that such a system is in operation in some European countries such as Denmark and the Netherlands, for instance. It is true to say that the existence of those provisions in other countries give a certain competitive edge to those countries. Generally speaking, my Department are supportive of these suggestions and will be looking forward to discussions with the Department of Finance. The 10 per cent rate of tax raises a very broad issue as to the basis of the 10 per cent rate. Typically it has been applied only to manufacturing and exporting services. The criterion in the Government's view has always been the capacity for very significant exports. In this context the 10 per cent rate has not been used in the past as a basis of providing protection. It would probably be more sensible to approach the tax problems of the insurance industry along the lines of recommendation No. 5 in the report. That is a personal view.

On recommendations 7 and 8 I endorse the recommendation that insurers should accelerate steps to meet freedom of services. My Department have been diligent in offering assistance to the insurers to help them on this road. The Government have also acted to improve the insurance environment here through a series of detailed measures. However, it rests essentially with the insurers to take action and to realise that action and plans must be made now. As for customer service arrangements, I indicated in my response last week to the report of the Joint Committee on Small Businesses that I fully accept the main thrust of the committee's recommendations that insurance companies should improve their customer relations and publish suitable information booklets. I indicated then that these recommendations were worthy of further discussions with the industry and that it is my intention to have my Department pursue them with the representative bodies of the insurance industry.

Finally in relation to insurance intermediaries Senators will know that Part IV of the Insurance Bill currently before the Dáil provides a comprehensive measure of regulations of all insurance intermediaries both brokers and agents. The scheme's basic aim is to protect the public and to assure them that, when dealing with an approved insurance intermediary, they can have confidence. The proposals in my view are fair and will allow for the recognition of a self-regulation role for intermediaries.

In the course of the debate we had here some issues of a very broad nature were raised, such issues as the suggestion that the State would get into the job of providing third party insurance from tax revenue. I would have to say there are enormous difficulties with that sort of suggestion. Insurance is based on the notion of risk and setting premia in relation to risk. Any system that moves away from the link between the risk and the premium charged is a dangerous one in my view. You end the incentive in an insurance system for people to avoid and to minimise their exposure to risk. Any proposal of this nature on funding insurance premia through taxation necessarily implies the shifting of the burden from people who are in high risk categories, or who have been careless, onto those who are more careful. The suggestion would have enormous implications which I would be slow to support. Senators must be aware too, in their comments on the very high rate of premia being charged, that the problem is not predominantly insurance industries forcing up these in order to push up their profit levels. Predominantly, as some Senators have remarked, the problem in Ireland is the extraordinary high claims experience we have been undergoing.

The thrust of what the Government are trying to do in this area is to bring down the cost of claims. I am not saying there is no scope for improving the efficiency with which the service is delivered to the public by insurance companies. Senators would be misleading themselves if they think we can resolve this by simple controls on the insurance industry. The problems of the high cost of insurance here run much deeper than that.

In conclusion I should like to pay a compliment to the joint committee for the balanced and thorough examination which they carried out on this difficult topic. Their work is an important and welcome contribution to this debate.

Question put and agreed to.

The Seanad adjourned at 3.25 p.m. until 2.30 p.m. on Wednesday, 19 November 1986.