The Leader of the Opposition in this House is not here but he told me before lunch in view of the fact that a number of Members did not get the Bill in time — some of them got it only this morning — that he would like us to conclude the business today around 4 p.m. and continue the Bill next week. It was his job to say this now but as he is not here I want to point this out now rather than at 4 p.m. If the House is agreeable to that, we are agreeable and I am sure the Minister will be agreeable also to it.
Insurance Bill, 1987: Second Stage.
Question proposed: "That the Bill be now read a Second Time."
I would like to thank the Acting Leader of the House for his co-operation in the matter.
I have no problems whatsoever with giving as much time as the Members of the Seanad require for a full discussion on Second Stage or any other Stage of the Bill. It is a long Bill and I have a long introductory speech. I recognise that some Members would want more time to consider it and I will not in any way curtail any debate on it.
Minister, I think there was a little trouble this morning with the Minister for Justice, Deputy Collins. Perhaps the Minister would get nearer the speaker before he commences his speech? Thank you, Minister.
This is a long awaited Bill. I know it will be recognised by all sides as an important step in strengthening and securing the position of the policyholder, not alone in his dealings with insurance companies but in his dealings with insurance intermediaries as well. I look forward to a welcome for this Bill from all sides of the House, and to an interesting and informed Second Stage debate.
The Bill as published has three basic objectives: first, to strengthen the Minister's legislative powers in relation to the supervision of insurers; second, to regulate commissions paid to intermediaries, where the policyholders' interests so require; and third, to introduce a form of regulation for insurance intermediaries.
The text of the Bill before the House was presented by my predecessor to the 24th Dáil in July 1986 but lapsed on its dissolution. Since assuming office in March last I have received many submissions from interested quarters on this Bill. Most of these supported the broad thrust of its provisions. In the light of these submissions, I will be proposing amendments on Committee Stage, many of which will be of a detailed or technical nature. A number of amendments will deal with the substantive issues in Part IV of the Bill, dealing with insurance intermediaries, where the Government have decided on certain changes; I will be addressing these aspects in detail later in my speech.
Before discussing the provisions of the Bill, I want to dwell for a short time on the role of the Minister for Industry and Commerce in relation to insurance and on the problems facing the insurance market in the State. The basic duty of the Minister in relation to insurance companies is the supervision of insurers to see that they are capable of meeting their liabilities and that they are solvent, and to take appropriate measures to rectify the situation if they are not. This is a duty laid down by both national and EC law.
It is not the role of the Minister to run the businesses of insurers, to make commercial judgments for them, or to exercise business acumen on their behalf. The directors and officers of an insurer are responsible in the first instance for the direction of the insurer's affairs, and for compliance with the law. Others such as auditors and actuaries who are charged with specific statutory duties to the company must also play their part. In this Bill I am adding to some of these duties. I am also taking power to require that those appointed as directors or officers of an insurer are suitably qualified or experienced to handle the task. Of course, these powers do not amount to underwriting the effectiveness of such persons in rising to the task. This is something which no amount of legislation could do.
What interests most people about insurance is not the supervisory aspects, except when crises occur, but the issues of cost, availability, and coverage of insurance, in particular motor and liability insurance. We have problems in these areas. Insurance costs are too high. Some classes of risks have difficulty in securing cover. Let us all be clear on a few things, however. The reasons for these difficulties are almost wholly outside the direct power of the Minister to control, and indeed in many cases are down to the individual actions of the citizen and the views which people take of their rights.
A large element of cost of motor insurance must be attributed to the irresponsible attitudes of many motorists to driving and to the law. We see examples of this daily. In the workplace an improved attitude to safety by both employers and employees is called for to reduce the number of incidents giving rise to claims. We can no longer afford to be tolerant of petty crimes and vandalism if we wish to see the cost of property insurance come down. In all cases it is action by the individual or by the community which counts.
The greater awareness of many citizens in claiming their full rights and entitlements to compensation under the law has meant that many more claims are made nowadays in respect of events which ten or 20 years ago would not have attracted a claim. Undoubtedly as citizens we value these rights and we would resist efforts to curtail their exercise. We should, however, be aware that increased claims consciousness and a more litigious environment have a direct adverse effect on insurance costs.
We have to tackle the roots of these problems and not just the symptoms. The problems are not amenable to simplistic solutions. Issuing directions to insurers to take on risks they do not wish, at premiums they cannot afford to charge, will only spell disaster. Putting provisions in law to make it obligatory to quote for certain classes of business will drive up the cost so that the very worst risks can be provided for and quite probably result in fewer insurers wishing to compete here.
I do not deny that there are things that can be done by Government. Much has been done. In motor and liability insurance, procedures have been instituted with insurers to deal with cases where the market has declined cover. We now intend to concentrate on measures which will influence the cost and availability of insurance cover.
The Government have decided to tackle costs by proceeding in the next Dáil session with the Bill to abolish juries in personal injury cases. The Minister for the Environment plans to introduce new legislation to strengthen the road traffic code and to deal more effectively with certain aspects of uninsured driving and other offences.
An inter-departmental committee under my Department's chairmanship have recently completed a study into the various factors which are responsible for high premiums. The report will be put before the Government in the near future. Measures which are likely to be recommended are: as a follow on from the abolition of juries in personal injury cases, the establishment of a book of quantum of damages for use as a guideline to future awards; a pre-trial procedure system to thrash out much of the time consuming aspects of cases; abolishing the two senior counsel rule; putting into effect the recommendations of the Barrington Commission report on safety at work; greater involvement by the insurance industry in the areas of road and work place safety and increasing public awareness and personal responsibility for safety at work and on the roads.
I would hope for rapid progress on most, if not all, of these points so that we can start to tackle and get under control as soon as possible these component elements of insurance costs. All these actions are positive proof of this Government's determination to grapple with the problems which have built up over many years. Changes will not happen or take full effect overnight but I for one am confident that the decisive action taken by this Government will be seen in times to come as the turning point in the insurance fortunes of this State.
Within my Department we have built up a considerable body of expertise in dealing with insurance. The training and calibre of staff have always been high and are constantly being added to. We are a small administration. We cannot afford the depths of staff resources employed in other countries but I am happy that the provisions in this Bill to allow for the charging of fees for supervision will ensure that the required level of staff resources and expertise will continue to be made available. Steady progress has also been made with the computerisation of the insurance branch of the Department which will contribute to the efficiency of the supervisory service.
I now want to turn to the content of the Bill and to describe briefly its main provisions. Part I contains the usual preliminary matters to be dealt with in any Bill. There is no need to go into detail except on one or two sections.
Section 3 introduces substantial penalties for offences under the Act and increases existing penalties for breaches of insurance law to modern day levels. Stronger provisions are also being laid down in respect of penalties for the deliberate provision of false or misleading information. This is important since the authorisation and supervision of insurers must rely on true and accurate data being submitted to the Minister. Section 7 confers fee-charging powers on the Minister. Fees of this nature are not uncommon in other States. No level of fees has been settled on yet but the intention will be to charge on a break-even basis for the costs of supervision. Section 9 of the Bill repeals some provisions of earlier insurance law, which are long spent.
Turning to Part II of the Bill, sections 11 to 14 contain provisions which are at the heart of insurance supervision. These relate, inter alia, to the submission of regular information by insurers, supplemented by specific requests for additional data or special examinations; and to the specification by the Minister of the essential rules regarding the estimation of insurance liabilities and the nature, spread and valuation of assets to meet these liabilities. This is, of course, the system we have been operating for several years past. The returns are currently made under various powers in four sets of regulations made between 1976 and 1986 under the European Communities Act, 1972. Also relevant is a set of administrative rules made in 1976 governing the assets of non-life insurers. The powers now being taken in sections 11 and 12 will copperfasten these rules and requirements in substantive insurance law.
In section 13 the powers are being extended to give a general power to the Minister to require information, both in relation to insurers themselves and in relation to a widely defined category of bodies which may be connected with insurers. Practical experience suggests that this extension of powers is necessary. Insurers, of their nature, will have many and diverse investments in, and relationships with, other commercial concerns. The fortunes of such connected bodies may be intimately bound up with those of the insurer.
Section 14 entrusts formal powers of investigation to the Minister and enjoins on insurers full co-operation in these exercises. Furthermore, if the investigation reveals practices which are not in the policyholders' interest, the Minister may order these practices to cease. The practice of special examinations of insurers' affairs is not unusual. As a matter of routine, a number of insurers are selected each year by my Department for study by outside consultants, particularly in relation to any special aspects that have arisen from the examination of the insurers' annual returns.
Insurance supervision cannot guarantee an insurer's solvency and it is important that the Minister should have the powers to take immediate action when problems come to light. Section 15 of the Bill provides the Minister with the power to intervene in the running of the business of an insurer who has encountered financial difficulties and whose solvency is in doubt. The powers of intervention include directions to cease taking on new business, to dispose of investments, to limit premium income, or to localise assets in the State. The powers are also exercisable on a number of other grounds specified in the section. While not directly related to solvency, these grounds are obviously of importance in a financial context, namely, the power to intervene where unsatisfactory reinsurance is in force, or where the level and nature of business being written is radically different from the financial projections set out in the business plan submitted by the insurer when seeking authorisation.
With the House's indulgence I will skip section 16 for the moment, since section 17 deals with the qualifications of directors and managers and is relevant in finishing off this overview of insurance supervision. At present, under EC directives, insurers seeking authorisation are required to submit details of proposed directors and managers, and the Minister does not authorise the insurer if he has an objection to any such person proposed. Section 17 retains this system but extends the Minister's powers of requiring information to existing office holders in insurers and to any new appointments to such offices. More importantly, the Minister may object to any person holding a position of responsibility with an insurer if it appears to him that the person is not suitable. The Minister may require the insurer to take certain measures, along the lines discussed in connection with section 15, for as long as the person in question holds the position with the insurer.
Additionally the Minister may veto the appointment of any director, chief executive or authorised agent, if the person to be appointed is not in the Minister's view a suitable person.
The powers in section 17 are new in an Irish context but they are a common feature of supervision abroad. It is vitally important that those responsible for directing the affairs of an insurer should be open to the tests of suitability and competence which this Bill provides. A very heavy duty falls on the shoulders of such persons and the public should be able to know that an independent mechanism exists to weed out those who are unsuitable or not qualified for the task.
While my first role is the supervision of insurers from a solvency point of view, I have also a function to play in the supervision of the insurance market — in seeing how insurers operate and how they meet the demands put on them by those seeking insurance. The provisions in sections 16 and 18 fall under this heading of market supervision. Section 16 gives me the power to monitor insurers' pricing practices and the contractual terms on which business is offered.
I am also taking power to require insurers by order to display premium rates and to provide information to consumers on policy conditions and rates in specified classes of insurance. The obvious candidates for such orders are motor, household and possibly life insurance, and I am sure the taking of these powers will be welcomed.
Section 18 deals with a different problem. The possession of an insurance authorisation means a responsibility to write business and to make a market in the class of business authorised. Unfortunately cases can arise where insurers make little or no use of the authorisation in specific classes, or temporarily withdraw from underwriting. There may be very good reasons for insurers doing so. We cannot force insurers to write insurance but we should certainly be able to act to withdraw or suspend authorisations in classes where no business is being done, or where the scale of business has been so reduced as to amount in effect to a cessation of business.
The central focus of insurance supervision is on "direct" insurers, that is, insurers who deal directly with the public. Insurers themselves in taking on risks seek to minimise their risk exposure by reinsuring risks, or parts of risks, with other direct insurers and with specialist reinsurers. Reinsurance is an international and specialised form of insurance. It is regulated in many countries abroad, but not here, except to the extent that it is engaged in by direct insurers authorised by the Minister. To attempt purely local supervision of specialist reinsurance in an Irish context would be ineffective. However, there are measures we can take to regulate a limited aspect of reinsurance and to promote a degree of transparency in the operations of specialist reinsurers in the State. This is the purpose of section 19. First, on grounds of commercial prudence it prohibits direct insurers from accepting reinsurance except in a class for which they are authorised as a direct insurer. Thus, to take an extreme example, a life insurer would not be permitted to take on non-life reinsurance. Second, it requires specialist reinsurers established in the State to identify themselves to the Minister and to publish accounts in such form as the Minister specifies.
Section 20 of the Bill requires a minimum paid up share capital of £500,000 of insurers seeking authorisation and empowers the Minister to regulate the nature of the share capital. This section incorporates into law present administrative practice and requirements in relation to the authorisation of insurers.
Section 21 deals with the attachment of conditions to authorisations and requires insurers to adhere to such conditions on penalty of suspension or revocation of authorisation.
The next section of the Bill relates to a type of insurance which has its origins in the last century in different social and economic times. I refer to industrial assurance — the type of life assurance paid for by weekly premiums and collected on a door-to-door basis. The individual sums assured tend to be low.
Within the past ten years the number of industrial assurance policies in force has declined spectacularly. At the same time the number of ordinary life assurance policies has trebled. The decline in industrial assurance policies, combined with the increased cost of collecting premia, has led to a situation in which the cost of running the business eats up so much of the premium that, after providing to meet death claims, there is little left for investment on behalf of the policyholder. For this reason, as many financial commentators have noted, the value for money of industrial assurance has declined.
Changing social patterns, better social welfare provision, the increased use of bank accounts, the expansion of credit unions, have all combined to reduce the importance which this type of insurance once had as a prudent and convenient means of saving. I do not wish to denigrate the continued value of this insurance. However, the fact remains that sums assured under industrial branch business in 1985 amounted to just 3 per cent of sums assured under ordinary life business.
Industrial assurance companies have for some time sought a number of changes in the law relating to industrial assurance to facilitate the continued underwriting of this class of business.
The first change desired is the removal of the current legal requirement that the funds in respect of industrial assurance and in respect of ordinary life assurance be kept separate by the insurer. The removal of the requirement would allow life assurers to write mixed insurance policies, where the premia could be either collected at home, or paid via a direct debit, at the choice of the insured, or in certain cases, at the requirement of the insurer. Section 22 (1) of the Bill facilitates the amalgamation of funds. I want to make it clear that there are no adverse solvency implications in this amalgamation. While the funds had to be kept separate under insurance law, there was never a requirement to keep assets separate.
The second request by assurers was to be allowed to reduce the frequency of collection of premia in certain areas where collection costs were very high. This is allowed in section 22 (2), although a frequency of not less than two months is still required. Both the changes I have detailed are permissive rather than mandatory. Insurers need not amalgamate the funds, or revise collection periods unless they so wish.
In agreeing to these changes the Government were conscious of the position of the policy holder. We have to face the choice either of making changes now to ensure that industrial assurance continues to be written and that policyholders get a better return for their premiums, or of allowing the present position to continue and a situation to be reached where industrial assurance fades away. I feel we have struck the right balance in the changes without prejudicing the rights of policyholders in general.
Finally, section 22 (3) increases to more modern day amounts the sums which can be assured under industrial assurance policies.
In dealing with industrial assurance we have delved into the past. This is also the case in section 23 which seeks to remove certain impediments to the writing of group policies of insurance contained in 18th and 19th Century Insurance Acts. The provisions of section 23 are uncontroversial.
The remaining sections in Part II of the Bill are a rather mixed bag. Section 24 extends to the Industrial Credit Company and Fóir Teoranta certain facilities to conduct suretyship and guarantee business which were extended to licensed banks in the State by the Insurance (Amendment) Act, 1978. The effect of the present section is to place ICC and Fóir Teoranta on a similar footing.
Section 25 and 26 are technical in their construction but straightforward in their intent. They are designed to close off a possible loophole whereby, under present legislation, a friendly society could be formed to conduct commercial insurance activity, without being supervised under the Insurance Acts. Section 25 will mean that the insurance activities permitted to be carried on by friendly societies, and in section 26 by trade unions, will be strictly mutual self-help activities — the sort of activities one associates with the raison d'être of these organisations anyhow.
Sections 27 and 28 deal with the unfortunate aspects of insurance resulting from the demise of an insurer. Section 27 is merely a precautionary measure to ensure that no petition can be presented for the winding-up of an insurer without the Minister being involved or heard. There are, after all, a number of courses open to the Minister which could be preferable to the winding-up in particular situations — for example, the appointment of an administrator or the promotion of a take-over by another insurer.
Provision is being made in section 28 to alter the applicability of the Insurance Compensation Fund. The fund will continue to be available to the two existing companies under administration but no future administrator of a non-life insurer would have access to the fund. The appointment of any further administrator is not foreseen but the legislative framework, which is in the Insurance (No. 2) Act of 1983, will stand.
At present, in addition to administrators, the fund can be used to meet claims arising in the liquidation of the non-life insurer. In future, in any such liquidation the fund would support only non-commercial personal claimants, and in their case a limit of £650,000 or 65 per cent of the claim, whichever is the lesser, will be applied. Refunds of premiums, or liabilities in respect of policies issued outside the State, will also be excluded.
These changes represent a significant reduction in the present levels of protection offered by the compensation fund. For that reason they are not lightly proposed. The changes are, however, absolutely necessary because the present arrangements are quite simply too generous, exposing the fund to a potentially unlimited liability. Adequate arrangements have been made to cater for all foreseeable demands arising from the present administration of two companies but it would be completely untenable to continue to leave the fund exposed to the possibility, however remote, of any further new demands in the future. The current statutory arrangeabl ment under which the Minister strikes a maximum levy of 2 per cent on non-life premium income each year is the most that could reasonably be demanded of or borne by policyholders to provide against insolvencies on the part of insurance companies.
It is to be hoped that the fund will not be called into action again, but if it is it seems reasonable to try to strike a balance between the burden this would place on it while, at the same time, providing some measure of compensation for those who might lose out most. This is what the Bill seeks to achieve. I hope the House will appreciate the reasons for the change.
The final section in this part of the Bill contains important new requirements in relation to actuaries. In future all life insurers with head offices in the State will be required to appoint an actuary to the company, if they have not already done so. In fact most, if not all, such life companies have an appointed actuary and actuarial staff. All new life insurers, upon authorisation, will be similarly required to appoint an actuary. Section 29 further gives formal statutory recognition to the status of the actuary in the company. The Minister is also empowered to specify the qualifications and experience of the appointed actuary, and in this way to add to the existing actuary qualification rules set out in regulations of the same name made as far back as 1940.
Part III of the Bill concerns the commissions paid to intermediaries. The provisions in this part are based almost entirely on similar provisions in the Insurance Bill, 1982, which was not proceeded with at the time because insurers arrived at a self-regulatory agreement on life insurance commissions.
One may well ask why the State should concern itself in what might be regarded as private remuneration arrangements between insurers and insurance intermediaries. The answer is obvious. It is the policyholder who ultimately pays for the commissions paid to intermediaries. Increased commissions mean higher premiums or reduced benefits. Additionally, excessive commissions can cause policies to be sold to unsuspecting customers on the basis of the return to the intermediary rather than of their intrinsic merit or suitability to the client.
Earlier this year a few life assurance companies set out to get business by offering over-generous incentives, including holidays abroad, to intermediaries who were selling their policies. If this had proliferated, the customer's interest would have been seriously threatened.
Following an immediate intervention by the Minister, there was a very welcome response from the industry in the form of a new commission agreement, subscribed to by all life offices in the country, which was put into effect from 1 August last. This new agreement signals a return to common sense, and it is being monitored very closely to make sure that it is implemented not alone in the letter but also in spirit. It is the Government's strong preference that the insurance industry regulates itself, but that regulation must be effective and must be seen to be effective. Otherwise I will act in the consumer's interest.
The form which this action can take is set out in sections 30 to 32. Section 30 allows the Minister to serve notice on insurers requiring reductions in commissions. Section 31 prohibits payment of commission through benefits-in-kind or by way of loans, and prohibits the payment of commissions in advance. These prohibitions are necessary to prevent the controls in section 30 being circumvented. Section 32 empowers the Minister to revoke an insurer's authorisation if the insurer is convicted of an offence in relation to commission payments.
The remaining sections in Part III of the Bill deal with certain consequences of the control of commissions. Section 33 restricts a person convicted of an offence under sections 30 or 31 from advertising his insurance business, unless the commission rates are reduced to those set out in the Minister's notice and do not contravene section 31. Section 34 makes it an offence, subject to certain defences set out in the section, for an intermediary to accept a commission payment which is higher than that set out in the Minister's notice, or which otherwise contravenes the provisions of this Bill. Section 35 allows a person to seek a refund of premiums on a life policy where excess commissions were paid.
As I have said, the main object of this part of the Bill is to concentrate the minds of all practitioners in the industry on the desirability of continued and orderly self-regulation, but its provisions will be applied either in relation to life or non-life insurance if circumstances warrant.
I turn now to the innovative part of the Bill, innovative in so far as no provisions exist in statute dealing with the important area of insurance intermediaries. First of all, let me say that the vast majority of insurance intermediaries go about their business in a very responsible fashion. However, there have been calls in recent years from some quarters for provisions in law to deal with the difficulties that arise very occasionally in consumers' dealings with insurance brokers or agents.
Part IV of the Bill as it was published last year proposed a scheme for the statutory recognition of insurance brokers as meeting certain professional standards in the conduct of their business. The raising of standards is an important issue which I know the two bodies representing the broking profession are pursuing vigorously. They are to be commended for their efforts. High standards of integrity and professional competence are very desirable from the consumer's viewpoint. But financial protection for the consumer in the event of failure to meet such standards is the critically important factor at the end of the day. The Government started with this basic premise in their consideration of how best to deal with the whole area of insurance intermediaries.
The primary concern is to protect the consumer as far as practicable. I emphasise "as far as practicable". Legislation cannot be expected to cosset the proverbial man in the street from every possible eventuality. While, theoretically, a scheme of regulation could be designed to remedy all possible defects in this area, in practice the direct and indirect costs and inherent rigidity in any such system would rebound ultimately to the disadvantage of the consumer. By outweighing the benefits conferred, such a scheme would be open to as much objection as the features it sought to remove.
The Government do not believe that the provisions in relation to ministerial recognition of brokers in Part IV of the Bill as it stands, as opposed to those measures to financially protect consumers, would justify the setting up of a supervisory structure such as that proposed. This view is reinforced by many of the submissions which my Department have received since publication of the original Bill last year. For example, it was envisaged at that time that most brokers would opt to join a recognised broking body and that the scheme of recognition would be a self-regulatory one with the recognised bodies exercising the necessary functions to protect consumer interests. However, numerous individual brokers have made it clear to me that, for various reasons, they would not be prepared to join either of the existing broking bodies. Accordingly, it is not intended to proceed with a scheme of formal recognition of brokers as originally envisaged. The appropriate modifications will be proposed on Committee Stage. At the same time, Part IV will strengthen certain financial protection elements for the benefit of consumers.
The Government's intention is that Part IV of the Bill will establish minimum criteria for persons wishing to act as insurance brokers, to protect consumers. By far the greatest abuse that arises, from the perspective of the policyholder, is the loss suffered when an insurance intermediary goes out of business with substantial sums of clients' money unaccounted for.
For this reason, two provisions in Part IV of the Bill will be of considerable interest. First, the requirement in section 39 for an insurance bond to be held by brokers and, second, the requirement in section 40 for brokers to keep a separate bank account for money owed to clients and to insurers. The purpose of the bond is to provide a safety net for clients. However, it is important to recognise that the bonding requirement cannot be so onerous as to be unaffordable for some brokers or to create a closed shop situation, both of which would erode consumer sovereignty.
The two main broking representative bodies in Ireland have expressed concern that a large number of their members will have serious difficulty in complying with the requirement in section 39 to hold a bond of £100,000. Individual brokers and other interested parties have represented to me that the level of £100,000 may be either too much or too little, depending on the scale of operations of the broker concerned.
In non-life insurance, bonding for brokers is not required to any great extent to protect consumers, as the effective position is that brokers are acting as agents of insurance companies for the purpose of collecting non-life premiums, which they hold in trust on behalf of the companies concerned. In other words, payment of a premium to a broker in respect of non-life insurance is accepted in nearly all cases as payment to the insurer.
In this connection, the broking representative bodies have pointed out that a possible interpretation of section 44, dealing with the treatment of premiums paid to agents, is to infer that premiums paid to a broker might no longer be deemed payment to the insurer. To avoid misunderstanding, they have suggested that section 44 refer explicitly to brokers as well as agents. I agree that this is a desirable clarification which can be dealt with on Committee Stage.
With most forms of life assurance, once a proposal has been accepted premiums are invariably paid direct to the insurer and brokers are not involved. Nevertheless, there are some gaps in financial protection for the consumer — for example, where money is entrusted to a broker before a proposal is accepted by an insurer — and this is where the bonding requirement will improve matters. I favour a bond related to annual turnover, as opposed to a fixed sum of £100,000.
A figure of, perhaps, 10 per cent of turnover may be appropriate, subject to an absolute minimum bond amount of £25,000. I am in consultation with industry sources on this particular aspect and will return to the matter on Committee Stage.
The position of insurance agents is catered for in the Bill. Broadly speaking, the onus will be on insurance companies to stand over the persons they appoint as agents. In the case of both brokers and agents, there are restrictions and prohibitions on certain persons from acting in the capacity of insurance intermediary. The sort of persons involved are those who have shown that their financial and commercial dealings leave a lot to be desired.
I am also taking powers to lay down codes of conduct for brokers and agents in their dealings with their clients, insurers and other parties. This will be of important benefit to consumers. The two representative bodies of brokers in the State already lay down such codes, but I consider it desirable to have powers to lay down codes and make them mandatory on all brokers and agents where necessary.
I have decided not to include reinsurance or specialist reinsurance brokers in the scheme. The clients of such brokers are insurers and reinsurers themselves who can be expected to look after their own interest without statutory protection.
Some may ask, "Will this Bill catch those who seek to describe themselves as something other than a broker or agent?". I am happy that the definition of "insurance broker" and "insurance agent" will include such operators, but, if it does not, there are supplementary provisions in section 45 of the Bill to meet the situation. Section 45 provides that, apart from the employees of insurers, commission can only be paid to a broker or agent who complies with the Bill. If there are persons who manage to escape from the Bill, and I doubt it, by describing themselves as insurance advisers or by some other term, they will have to provide their services free, or will have to seek remuneration in some other way from their clients. I cannot imagine that there will be many intermediaries who will work for no remuneration, or who will prosper by charging clients a fee when other similar intermediaries will not be doing so.
Part V of the Bill refers to miscellaneous final matters. These include in section 50 the right of appeal by insurers to the High Court against the suspension or revocation of an authorisation, or against a direction or objection of the Minister under the provisions in the Bill relating to qualifications of directors.
Section 51 deals with procedures to be followed in suspending or revoking an authorisation, particularly in regard to the notification to be given to the supervisory authorities of other member states. The removal of a suspension is also catered for and the position of contracts of insurance issued before a suspension or revocation is clarified — they continue in force as valid contracts.
Section 52 is a technical amendment to require the Minister to seek the consent of the Minister for Finance to the waiving of any debt due to the insurance compensation fund. Finally, section 53 is a minor amendment to allow a realistic fee to be charged for inspection of the register of insurance authorisations.
I will also be proposing on Committee Stage to take powers to appoint authorised officers under the Insurances Acts for the purposes of entry and inspection. These powers will augment existing powers available in secondary legislation under the European Communities Act, 1972. The powers are enabling only and I do not anticipate an immediate or widespread need to use them.
I hope the House has found this exposition of the Bill useful and informative. Given the subject's importance, I felt it necessary to speak at some length. I will be happy to answer points on which further clarification is needed by Senators.
Again I repeat there is no mad rush regarding this legislation. It is a very extensive Bill which appears long overdue. The House will have all the time in the world to discuss it.
First, I should like to welcome the Bill which the Minister has introduced to the House. As he has said himself in his concluding remarks, it is very important legislation in the interest of the consumer. I know the Minister and everyone else is well aware of the uncoordinated and haphazard approach to insurance sales which are taking place and which have long been transacted in this country. It is like all legislation that comes before either House of the Oireachtas; it is well after its time and it has been discussed long enough, over the past decade or so.
I am glad the Minister has now introduced a very extensive Bill. It is very similar to the legislation that was published last year which was thoroughly researched by the Department of Industry and Commerce at the time. I know that they have received submissions, particularly from the broker organisations but also from the Irish Insurers' Federation, in order to meet and fine tune the requirements that various interests would have in regard to this legislation, in putting it into practice.
In his opening remarks the Minister referred to the high cost of insurance and the necessity to bring down that high cost in order to meet the great competitiveness of industry and, in order to make insurance companies more competitive, to bring about a reduction in insurance premiums to the various individual policyholders. I, too, share his concern about the high cost of insurance. It is probably one of the greatest overheads that any business person has in the community today.
I am extremely concerned, in particular, about the high cost of employers' liability and public liability insurance premiums to businesses. Companies are now running the risk of having no insurance cover at all because of the prohibitive premiums that are being quoted. Insurance has become very difficult to get for certain walks of life. I am speaking, in particular, about engineering firms where there is a high risk involved. In the general insurance area, the cost of liability insurance to the building and construction industry is extremely high. That has reverberations on the competitiveness of the quotations given to individuals who are building houses or a factory. They are competing against a black economy with no overheads.
Companies are often prepared to go into receivership if they get a large claim, rather than meet the cost of the insurance claim from their own sources. This confirms the view that insurance premiums are now preventing job creation and are contributing, in my view, to job losses. Various companies such as steel erection companies, for example, in the agricultural sector, because they have such an excess on their policies, perhaps up to £20,000, are prepared to take part of the risk in any case. Why should they take any of the risk at all in taking out any insurance cover? A sum of £20,000 would often be enough of an excess to put that company out of business, with margins so tight nowadays.
I call on the Minister to take very quickly the action which he proposes and which he has outlined in his speech today. The quantum charges that he has spoken about on a tribunal type system have been in operation in the UK for a considerable length of time and this is something which is long overdue in this country. I agree with him that it is more an attitude of mind in this country. People have become very claim conscious and are looking around every corner for opportunities to make a claim. Often in our various dealings with people in our constituencies we hear people boasting at pub counters about the amount they are going to get out of an insurance claim. That is not good for society. It is not a good type of attitude that is permeating society, gathering soft money, as it were, from an unfortunate insurance company or, in particular, from an unfortunate policyholder who will eventually have to pay for that claim.
As regards a tribunal type system for personal injury awards, in Canada, for example, there is a compensatory mechanism of paying an insured pension a certain income per week rather than a lump sum. Perhaps under the terms of the recently ratified Single European Act, where insurance will become a sensitive area in the internal market, more competition can be garnered from the various insurance companies throughout the European Community, in order to bring about even greater competition in this country for quoting insurance premia.
A more strict régime of departmental inspection is essential to ensure that employer and employee adhere to proper safety procedures in the workplace. The Minister referred to the two senior counsel situation in High Court cases. The settlement cost in each case would probably amount to 25 per cent of the total cost of the claim put forward by the legal profession. It would add significantly to a reduction in premia if this two counsel rule on each side of the case were to be abolished.
I appeal to the Incorporated Law Society and the Bar Council to come together themselves and bring about a self-regulatory situation rather than have the Minister for Industry and Commerce of the day forced to wave the big stick, as it were, in order to bring people to heel. He has successfully achieved that in the insurance industry in recent days, which I will refer to later.
The jury system, certainly, should be abolished. I hope the Government will bring forward the Courts Bill in the coming session so that we can bring about a lowering of the cost of insurance transactions and litigation in the courts as quickly as possible. I am often surprised, as well, at some of the people who go before the court, the High Court in particular, and here I am talking about members of the medical profession and, perhaps, the engineering profession, to give evidence on behalf of insurance companies or various clients in that the fees they charge are a little exorbitant. One could hardly justify, in any walk of life, paying any person a couple of thousand pounds a day to give evidence in a High Court case. Unfortunately, that is the kind of figure we are talking about. The Minister should put a limit on the amount of money that can be charged by these professional people. I accept that they are important to a case in that they are needed to give evidence and to convince the justice but the fees they charge could be much lower. If their charges were lower, perhaps the cost of insurance premiums to the policyholder would be substantially reduced.
The waiting period for a case to be heard by the High Court often adds to the cost of a claim. At present there is a three year waiting list for cases outside of Dublin. I hope the proposed Courts Bill will allow the High Court to sit in other parts of the country as this will allow more cases to be heard quickly, with a waiting list of not longer than six months. The cost of a claim increases rather than decreases the longer the case goes on. Industrial competitiveness is important and it will not be achieved if we fail to get the high cost of insurance down. I appeal to the Minister to ensure that the initiatives that he has outlined here today will be put into force as quickly as possible.
This Bill is an important milestone in that it brings together the many regulatory features of the insurance world which have failed to materialise over the past 20 years. The two insurance organisations have made various submissions to the Minister. I would like to remind the Minister that the vast majority of agents and brokers are not members of these two organisations. In fact, the National Insurance Brokers Association, the larger of the two, have 300 members at present, and the Corporation of Insurance Brokers have less than 100 members. From reading the Bill I note that the Minister has taken cognisance of that fact. Senator Fallon is an astute observer of the insurance world — I must declare that I also have an interest in this matter as I derive my livelihood from the sale of insurance — and I must say that the amendments proposed today bear the hallmark of a man like Senator Fallon. I hope the Minister will continue to take any advice he gets from brokers such as he.
I will have to look after him.
Section 7 refers to the fees that may have to be paid by applicants. In the past whenever a fee or a levy was put on an insurance company it often found its way back to the consumer. For example, in the case of the PMPA a 3 per cent levy, which included the 1 per cent Government levy, was charged on all insurance premiums. Unfortunately, it is the policyholders who will end up picking up the tab rather than the insurance company it was intended should pay the costs. These fees will, undoubtedly, also find their way back to the policyholder. I appeal to the Minister to prevent that happening. I regard these fees as nothing more than an indirect tax on policyholders, if past experience is anything to go by. Should the Government decide to introduce special fees, I hope prior discussions will take place with the brokers' organisation and, in particular, the insurers' federation in order to ensure that whatever levies are collected will only go to cover the administrative costs. I hope they will be kept to a minimum and, as far as possible, that it will be the insurance companies who pick up the tab rather than the policyholders as has happened in the past.
In regard to the general powers being introduced, the Minister may only request additional information where he has good reason to doubt whether an insurance company is complying with its obligations under the Insurance Acts. The additional information which the Minister may request is wideranging. Therefore, it might be costly and time consuming to provide. At times, this information might take a long time to collect and it might be quite expensive to do so. It is only fair that the Minister should be asked to show good reason why this information is being sought rather than seeking information just for the sake of it. It is important also that insurance companies should be asked to produce information which they are in a position to obtain. It may be impossible, for example, for a company to obtain detailed financial information on a connected body. Problems could arise in getting that type of information quickly, particularly in the case of a company becoming insolvent. Perhaps a minor amendment could be made in order to make clear that an undertaking is only expected to provide information which the company could reasonably be expected to and, more important, have the power to obtain from a connected body. Here I am referring to subsection (13) of section 13.
Section 14 deals with investigations. Obviously, these can have a negative effect, if we are not careful about how we implement the section. An investigation into the affairs of a particular insurance company can lead to rumours. Often rumours become more extensive than they should. We have noticed in the insurance industry over the past number of years that when the difficulties being faced by some insurance companies which led to the collapse of two were investigated the brokers and policyholders began to get fearful that they would face the thin end of the wedge if following the Minister's examination of the company it was found to be insolvent. I appeal to the Minister to be very careful when he uses his powers to intervene in the day to day commercial operations of a company.
The Minister's pet subject at present is the financial services sector on the Custom House Docks site, and he is appealing to international companies to set up on that site. In the implementation of this section the Minister would need to be extremely careful to ensure that he does not turn these companies off by interfering in their day to day commercial operations. I ask the Minister to look again carefully at section 14. It will not apply to any other sector of the financial world and will not apply to banks, building societies or other financial intermediaries. All the Minister needs to know is whether the company is prepared to meet or able to meet its financial obligations and whether it is solvent. Any provision which could be introduced in order to remove the fears of companies in relation to this matter would be welcome.
Subsection (4) of that section would then be unnecessary because the Minister would have sufficient powers under section 15 to deal with any undertaking of doubtful solvency. Therefore, section 14 may not be necessary at all. If it is intended that this section should cover more than the financial affairs of a company I will strongly oppose such moves, although I have no desire to stop the Minister fulfilling his duty to protect both policyholders and consumers. The Minister has already ample powers under both insurance and consumer legislation to deal with any abuses. If in the future it can be shown that the existing legislation is not adequate it will be up to the Minister to propose new legislation and this can be thoroughly debated in both the Dáil and Seanad and by all interested parties. If there are anomalies in the section that we can come to terms with I am sure that on a future occasion we could introduce an amendment to cater for any gaps in the legislation.
Section 18 deals with the revocation of an authorisation. This could cause difficulties for the Minister in operating this section in the Bill because the conditions under which he may revoke or suspend an authorisation following the temporary cessation of business or the reduction of the scale of business written in a class or part of a class of life or non-life insurance lack the necessary legal precision. As part of their normal commercial and underwriting philosophy insurance companies do reduce their exposure in certain classes of business from time to time. It is vital, therefore, that companies know precisely what reduction in the scale of business the Minister would deem to be grounds for the revocation or suspension of an authorisation. Without specific guidelines this section might be impractical. I would be interested in whatever regulations the Minister would bring before the House in order to see how he could bring the implementation of section 18. Otherwise I would be opposed to the section.
Section 19 deals with reinsurance. There is not much reinsurance taking place in the Irish market for Irish insurance companies in particular. One is dealing in most cases with international companies. The Minister is more than aware that the level of losses sustained by non-life companies in particular in underwriting business is very serious at times. Therefore, there will have to be an unloading of certain risks at various times, which the companies are able to do, and some reinsurance to protect the interests of the insurance company will have to be allowed.
In the next ten years the insurance companies in Ireland who go to the Stock Exchange to provide some immediate source of cash in order to meet their financial requirements will have to advertise themselves on the international market in order to attract more reinsurance business into their companies if they are going to meet the level of liabilities that might arise over a huge level of claims. The Minister might be going a bit too far in banning too many aspects of reinsurance under this section. Another Minister could probably come back during the next few years looking for an amendment to that section because companies would not be able to continue their business satisfactorily if they have not access to premia from reinsurance activity.
I would also like to draw attention to the fact that the acceptance of inwards reinsurance is a very useful way of generating overseas business at present and would be a boost to the financial services sector. When and if freedom of services is introduced in non-life insurance then local companies may seek to increase the level of inwards reinsurance business they accept in order to replace the inevitable loss that is going to take place in business to foreign insurance writing business in Ireland on a service basis. I would suggest, therefore, that it is inappropriate at this stage to consider imposing restrictions on the ability of local companies to accept reinsurance business.
In relation to the Insurance Compensation Fund, the effect of section 28 (2) (1B) would appear to deny the small family-owned corporate body or the unincorporated body the protection under the Insurance Compensation Fund. I would be extremely concerned if unincorporated bodies were not able to get access to the Insurance Compensation Fund. The fund should be available to all bodies whether they are incorporated or unincorporated and the limit of £650,000 or 65 per cent should be available to all. I do not think that the Minister could honestly exclude small businesses from section 28 of the Bill. It is a reserved power of the Minister and I am sure he will be more than anxious to facilitate those businesses.
Section 30 in Part III of the Bill refers to commissions. As the Minister stated, it is the view of both brokers' bodies that the Minister's intention to assume powers to reduce the level of commission payable to intermediaries is one he has not taken lightly but it was important for him to take some power into his hands in view of the fact that commissions have been getting out of hand, particularly in recent times. I am glad that the life offices in particular have come to an agreement. Since 1 August they have laid down certain objectives which would reduce the benefit-in-kind objections that people would have, which would have given an unfair advantage to one company over another. It is worth noting that certain exceptions cannot be avoided in the elimination of benefit-in-kind, particularly in the marketing of products, and improvements in software and computer technology which are becoming a feature of many brokers' offices at present.
Perhaps the Minister would take on board the fact that life offices in particular have come forward now with an agreement of their own on a self-regulatory matter which has been working extremely well since 1 August. When he is implementing this legislation he should take into account that where self-regulation is operating satisfactorily there is no need for a Minister to interfere. If it gets to the stage where holidays abroad are the order of the day other inducements are given to the various intermediaries in order to sell one company's product over another, then I agree that he would have to step in and do something about it.
With regard to the timing of commission credits, it is important to understand that there will be technical difficulties in the implementation of section 31 because of the premium payment plans and deduction schemes operated by various firms and the fact that a broker would pay over a net premium to a life company in particular in relation to his commission. This section of the legislation would militate against that. The legislation should take account of the fact that some premiums are so exorbitant that they cannot be paid in one lump and that premium payment plans are now very essential because they spread the burden of the insurance premium over 12 months. Deduction schemes — and perhaps such a scheme is operated in the Minister's firm — are very important to employees because they provide some protection for their families in terms of life cover and provide investment funds for future occasions such as education of their children. I would appeal to the Minister to introduce an appropriate amendment in order to take account of the difficulties which would arise in the implementation of the scheme.
Section 37 deals with the qualifications of insurance brokers and this is probably going to cause the greatest controversy in the Bill. Much discussion will probably centre around the question of whether a broker is a broker or whether a broker is an agent. The overriding concern of insurance brokers at present is the enormous competition that they face from agents such as bank managers, accountants, solicitors and people who are not professionals in the insurance world but who have tied agents with particular firms and transact business accordingly. If a person goes into a bank to get a loan and the bank manager asks him if he wants life cover or a life policy, Joe Soap is not going to say: "I do not want it", particularly in view of the fact that he wants a loan. This is the kind opf unfair competition which is being experienced in the insurance market at present. I am glad that one of the main banks has decided to remove their bank managers from that system, even though they have set up their own insurance company in its place.
They have redirected the gravy.
I would say that the same level of consistent dialogue will take place between the bank manager of the ICS and the insurance company that has been recently established. I hope the Minister will take cognisance of that development and that the competition element that is so essential to the consumer is protected and that the policyholder gets the best value for money at the end of the day in that instance. The Minister will come under pressure from the building societies who wish to enter into the financial services market as well. The building societies are no bad hand at getting an extra cut of the commission from certain insurance companies. I am sure various building societies have netted a nice sum of money in commissions. As insurance brokers we get 12½ per cent commission on a house while the building societies get 35 per cent from insurance companies. These inconsistencies exist in the insurance market.
Brokers have to establish proper offices. They have to pay their rates, income tax and staff. They have to provide the expertise. They have to be professional people. The cowboys are gone. I hope this Bill will finally eliminate any remaining cowboys. Many policyholders have expressed disdain and disgust at the type of policies they were sold, at the outturn of their investment or the cover that they were supposed to have received. It is time the Minister ensured that professional insurance people deal with the consumer. People who are not professionals in the categories I have mentioned are not in the business of advising people on insurance. They have enough to do in advising people in their own walks of life as it is.
Regarding the qualifications of insurance brokers, there will be a tremendous debate on the agencies. I can see a problem with this. The Minister has to resolve whether it means four general agencies and four life agencies or four agencies in total between life and general. An insurance broker at present who has six or seven agencies in life and seven agencies in the general business is now being compelled to get a fidelity bond and take out professional indemnity insurance, which at present costs £5,000 per annum. Many brokers throughout rural Ireland will think about reducing the number of agencies they have to four in the life and in the general insurance sector, and calling themselves agents. This will eliminate the harassment of a bond or professional indemnity for most of them.
No insurance intermediaries or small brokers could afford an overhead of the significance of £5,000 per annum. They will take a chance and become agents. By and large they will be able to service their customers adequately with a smaller number of agencies. However, this is not in the best interest of the policyholders. It is not in the best interest of the consumer because the consumer is entitled to the widest possible choice of agencies at his or her disposal so that he or she can get the best policy at the lowest price and at the end of the day get the best value. The Minister could have a problem on hand with that section of the Bill. I look forward to the way in which you interpret this regulation on Committee Stage.
An Leas-Chathaoirleach
The Senator should address his remarks through the Chair.
Being a new Senator I am only getting used to protocol. The major concern of brokers in the proposed legislation is that they will have to provide for the £100,000 insurance bond, not a guarantee bond as they often have to provide for in other parts of their affairs. This is to be applied for the benefit of the client. I would certainly agree with that. I compliment the Minister on the initiative he has taken, in amending that section, to phase in the operation of providing this bond for the smaller broker, starting at £25,000 or a percentage of turnover. I appeal to the Minister to use his good offices to ensure that the prohibitive premiums being charged for professional indemnity and for the acquirement of a fidelity bond will not put small brokers out of business or terminate their employment. Any underwriter prepared to write an insurance bond would want to see the accounts of every insurance broker for whom they would provide the cover. Apart from the fact that it is unlikely that brokers would grant access to their accounts, I question whether it would be wise to allow one insurer access to such detailed information as it would give some advantage over other insurers in the market.
The most serious worry as far as the insurance brokers are concerned is the cost of the bond. I appeal to the Minister to reduce the percentage turnover and the cost of this bond. Otherwise the Minister will have more trouble than he bargained for. Insurance companies would have more administrative costs in sending policyholders renewal notices directly rather than dealing with their broker, if the broker goes to the wall. Brokers are going to the wall still. It is an unfortunate fact of life.
The keeping of a separate bank account under section 40 is very imporgaine tant. It is about time it formed part of the legislation. Some insurance brokers think that when they receive the premium from a policyholder it is their money. Unfortunately, when the crunch comes and they have to meet other financial obligations they resort to the insurance account. I certainly welcome the inclusion of a separate bank account as part of the legislative process. It should protect the interests of the insurance company and also ensure that the client's money is actually passed over from the broker to the insurance company.
Section 43 deals with the scope of the agency. The Minister will have to decide whether the agent represents only one life and one general company and in that case would not need a fidelity bond and professional indemnity. If an agent has two life agencies and one general agency professional indemnity is important and a fidelity bond will be required. Otherwise we will have unfair competition between the professional insurance brokers and tied agents. It should be mandatory on the company representative of a particular insurance company to declare his interest in the company when selling insurance to a policyholder. Often people who are tied agents to a company do not indicate that in their letterheads. Tied agents or insurance brokers should indicate on the letterheads the company or agencies they represent.
Section 44 deals with the treatment of premiums paid to brokers or agents. This section of the Bill exposes a difference in practice between life and non-life markets. Perhaps it will require redrafting in order to avoid the anomaly. In the life market the premium is not deemed to have been paid until it has been received by the insurer. In the non-life sector the position depends on the standing of the intermediary in the community or the standing of the intermediary with the insurance company, which is more important. While payment to the broker has been long accepted as payment to the insurer, the same is not true with some classes of agents.
In the O'Donoghue report, of which the Minister would be aware, it was proposed that the position with regard to agents be clarified. This proposal is reflected in the Bill but it needs to be tightened up as there could be anomalies. On reading section 44 it is possible to conclude that payment to the broker might no longer be deemed payment to the insurer. This interpretation would be very damaging to the position of bona fide brokers. We feel sure that was not the intention. To avoid any misunderstanding I suggest that this section be redrafted to include the words "or broker" after the word "agent". Section 45 deals with the payment of commission by brokers to others. The Minister will be aware that there are intermediaries who will introduce business to insurance brokers. For example, perhaps an accountant at this time of the year will be advising a client on how much of a personal pension he would have to provide in order to get personal tax relief to which he is entitled under the law. At present an accountant is entitled to have an agency of his or her own. If the accountant does not wish to consider insurance business in the future whatever arrangements such people make with insurance brokers — for the division of commission and so on — should not be interfered with. The policyholder, the person of prime importance under the provisions of this Bill should be afforded the best deal by having this introduction to a broker by an accountant. Commissions paid in such instances should be treated sympathetically. The provisions of this section might create difficulties in that regard and, as such, might be damaging to insurance brokers' business.
In section 47 (a) the use of the word "is" appears to imply retrospection. It should be pointed out that no time limit applies to that subsection as currently drafted. The use of the words "after the coming into force of this Act" might be considered appropriate.
I thank the Minister for having introduced this Bill in the Seanad but we regret its speedy introduction. I did not get a copy of the Bill until I arrived in Dublin. The Minister may not be at fault but somebody is. The nitty gritty that will have to be teased out in the various sections means that the Minister will have to propose amendments or, alternatively, we shall have to propose amendments. I hope the Minister will accept any such amendments in the helpful way in which he has always considered legislation in this House. I am quite certain that in that way we will have a Bill in the insurance sector that will regulate intermediaries, stamp out the cowboys in the trade, give fair value for money to policyholders, at the same time protect the consumer which is the main purpose of any Bill in this area.
I welcome this important Bill, first published in July, 1986, and placed on the Order Paper by the Minister of the day. It lapsed with the dissolution of the Dáil in January this year. The Bill has been long awaited by the insurance industry and will be widely welcomed. The Minister is to be complimented on having brought this Bill so speedily before the Seanad.
The rules and regulations governing the operation of insurance companies in Ireland are covered by the Insurance Companies Acts, 1909 and 1985 and by various regulations imposed under the provisions of the European Communities Act. The Bill proposes to clarify and extend these powers in a number of respects and to update certain aspects of the Insurance Acts. The Bill is in five Parts. In essence it highlights three main themes — (a) to provide new supervisory arrangements in relation to insurance companies; (b) to regulate the payment of commissions to insurance intermediaries and (c) to introduce a system of regulation of insurance brokers.
Part II deals with the supervision of insurers and responsibility is given specifically to the Minister for Industry and Commerce. The Minister is known as the supervisory authority.
This Bill puts into substantive law what is already in practice in the insurance industry. Under this Part the Minister can demand that insurance companies submit for inspection financial returns in relation to the company or particular aspects of a company's performance. The Minister can also obtain similar information on all bodies connected with the insurer. Failure to provide the information within a specified time may incur the suspension or revocation of an authorisation. It permits the Minister to investigate the business of the insurer where public interest or the interest of the policyholder so requires.
The provisions of the Bill ensure that the Minister can obtain full information in order to carry out a full investigation. Where practices detrimental to the interests of policyholders are revealed the Minister may direct that these practices cease. Failure to comply may result in the suspension or revocation of an authorisation. It is obvious that powers of this nature are vital to the Minister if he is to exercise effective control over the running of insurance companies. They are to be welcomed. We are well aware of the need for the Minister to be in a position to ascertain the financial health of any insurer and to act swiftly in taking the necessary remedial action if so required. The Minister has a responsibility to ensure that companies have adequate reserves to meet claims lodged but which may take several years to settle.
The Bill contains the necessary provisions to enable the Minister to direct the insurer to take specific measures where he has reason to believe that an insurer may be unable to meet their liabilities or the required margin of solvency.
It is most important in the public interest that the Minister monitors the solvency of insurance companies on a regular basis.
Many people, particularly those in industry, are concerned at the escalating cost of premiums which is placing insurance cover beyond the reach of many small companies and, in turn, many jobs at risk. Many people believe insurance companies are making huge profits. This is not the case. In 1985 — excluding the ICI, insurance companies dealing in liability underwriting — had a loss of £34 million and motor insurers incurred a loss of £17.5 million. Claims are increasing constantly. It appears now that for many reasons, people are becoming more claim conscious, believing insurance companies are an easy touch in respect of any small injury or accident. Jury awards are believed by many to be much too high. Losses are sustained by insurance companies by utilising their investment income. One might well pose the question: how long can insurance companies continue on this basis? How long can companies in the industrial sector continue to pay ever-increasing premiums which comprise a very serious overhead for small companies in respect of employers' liability, public liability and other types of insurance. There is a great need for a reappraisal by all parties to recognise that premiums must be pitched at a cost that insured companies can afford and claims awarded that will allow insurance companies to remain solvent and be in a position to honour these claims. Insurance brokers will claim that the imposition of section 31(2) could result in increased premiums. Section 31(2) states:
The holder of an authorisation shall not pay to, or credit to the account of, an insurance intermediary a commission payment in respect of a policy of insurance until the premium to which the commission payment relates is received by the holder, and recorded by the holder as having been received by him.
Does this mean an end to the premium payment plans operated by companies? I could visualise the implementation of this section causing a cashflow problem for brokers who at present are paid commission upfront. Everyone agrees that it is desirable that the cost of insurance is reduced, but what can be done? I believe safety at work must become a daily ritual for both employers and employees. We must ensure that the number of accidents in the workplace is substantially reduced or eliminated. I understand that the Department of Labour's interim board is starting to translate the report of the Barrington Commission which deals with health and safety at work into legislation and practice. I believe the insurance companies have a vested interest in investing time and money to encourage safety at work and safety on the roads. I welcome their initiatives in this area.
What can the Government do to reduce the cost of insurance? I welcome the statement made in the introductory remarks by the Minister that the Courts Bill which will be enacted will abolish juries. This Bill, I understand, will introduce a system of pre-trial procedures which will reduce legal costs. In addition, it will abolish the two senior counsel rule which requires that two senior counsel and a junior counsel are employed on each side in a typical High Court action. I am aware of a number of small companies who just cannot afford to take the risk to go to the High Court. I am aware that one company in particular tried to ascertain what the cost might be in a High Court action and the quote was £5,000 for the first day and £1,000 for each day after that. These are the types of costs that are very hard to justify. The Courts Bill is being sought by the insurance industry. I am glad to note that the Minister will expect insurers to pass on immediately any savings made resulting from the proposed legislation. The Bill, however, will not be addressing the problems of high cost and low availability of insurance. I am aware that other measures are in the pipeline to do so.
In Part III of the Bill the Minister is taking powers in relation to the payment of commission to intermediaries. The Bill empowers the Minister to require insurers to reduce the rate of commission where he is of the opinion that these are excessive. These powers are reserved and he will use them when necessary. If, for example, the Life Insurance Industry Federation Commission agreement broke down the Minister would move swiftly, I am sure, to restore order to the market. In the early eighties insurance companies were paying over the odds to brokers and agents in competition for business. These excessive rates were paid at the policyholders's expense. Part III of the Bill was introduced in the Seanad in 1982 as a separate Bill. However, the industry came to an agreement among themselves and the Bill was not proceeded with. Earlier this year the old problem of excessive rates surfaced again but the industry came into line with a new inter-company agreement following the threat of new legislation. Part III will go a long way in underpining this new agreement.
Part IV of the Bill sets out mainly to give financial protection to policyholders in their dealing with agents or brokers. In the past a broker did not require bonding. This legislation will not make it a mandatory requirement that an insurance broker holds a bond to the value of not less than £100,000. However, as indicated by the Minister, some flexibility will be allowed in this area. I welcome this because I wonder how many companies could afford a bond of £100,000. I think it is wise to move flexibility in this area. However, it is fair to say that most reputable brokers have professional indemnity insurance and insurance bonding. In the event of the broker failing to meet his financial obligation the bond will become available to a person nominated by the Minister who will apply the proceeds for the benefit of any of the brokers's clients who have suffered financial loss.
Section 40 provides that an insurance broker must lodge premiums paid to a client's bank account. This, I understand, will give protection to the investor in the event of the broker going into liquidation. In fact, the banks or the Revenue Commissioners will not have any preferential claims on these moneys.
Section 37 specifies the qualifications required by persons before they can act as insurance brokers. Section 37 (b) states that the broker must be in a position to arrange contracts on behalf of his clients with at least five insurers.
Section 41 defines insurance agents' qualifications and I quote:
(a) he holds an appointment in writing from an insurer,
(b) he states on his letter headings and business forms the name or names of every insurer for which he is an agent, and
(c) he informs any proposer of an insurance contract of the names of the insurers for which he is an agent.
It would appear that the Bill deals adequately with the qualification requirements of brokers but does not demand similar high standards from agents. A person may still trade as an agent without any professional qualifications or experience and is not obliged to have any professional negligence insurance or bonding.
Section 43 states that if the agent is acting on behalf of the insurer the insurer must accept full responsibility for the agent's actions. At present the agent is deemed to be the agent of the client. This legislation reverses significantly the legal position. However, while this protects the policy holder it leaves the company in a very vulnerable position and leaves scope for unscrupulous practitioners. Insurance brokers would deem it desirable that a subsection be added to the Bill stating that anyone holding more than five agencies must be a registered broker in the eyes of the law. In view of the fact that agents are not required to have negligence insurance or bonding, should they be restricted to the number of agencies they might hold? In relation to the bonds, is there an underwriter on the market to underwrite the £100,000? As I said earlier, that matter is dealt with in the Bill.
Section 41 (b) compels agents to state on their letter headings and business forms the names of the insurance companies they represent. I wonder if this regulation will apply to bank managers, accountants and other such persons. The legislation contained in this Bill should apply to everybody, with no exceptions. Should bank managers be allowed to continue to act as intermediaries? It is fair to say that when people obtain a housing loan from a bank they are usually so relieved that they are reluctant to seek insurance quotations or terms, other than those possibly recommended by the bank manager. In these days of high unemployment is it right and proper for bank managers to engage in the selling of insurance when small brokers and agents employing one and two people are struggling to survive and are in a less privileged position?
The Bill is directed at consumer protection and will be welcomed by the public at large. I welcome the inclusion in the Bill of the section on the proposed code of practice which lays down codes of conduct for the brokers and agents in their dealings with their clients, insurers and other parties. This will give further protection to the consumer. This is very important legislation in the field of insurance and will be welcomed generally throughout the industry and by the public at large.
The presentation of this Bill to us three days ago has done a very poor service to responsible consideration of the legislation. It is grossly unfair that a Bill which we received on Monday is being debated on Wednesday. I know we have already discussed this matter this morning but I want to say it also for the record.
An Leas-Chathaoirleach
I would like to point out that repetition of that nature is not desirable but you have made the point, Senator.
I am glad of your guidance, a Chathaoirligh, and I hope that all other Standing Orders will be complied with in the same way. I noticed a key speaker this afternoon reading his speech. I understood that is something that is not acceptable to the Chair so perhaps you might consider the position for the future.
An Leas-Chathaoirleach
It is acceptable for people to refer to notes. That has always been the case.
A key speaker here this afternoon read his speech word for word. As I understand it, that is not allowed under Standing Orders. Tolerance for one should be tolerance for all in an egalitarian society.
I welcome this Bill. I have certain criticisms of it which I hope to translate into amendments later. The idea behind the Bill is a good one. The problems the Bill sets out to solve need to be resolved. I have queries on the Bill and I suppose I am taking a very easy way out in that I am giving a stream of consciousness kind of contribution on the Bill. I will be raising questions rather than supplying answers but I expect that makes matters easier for the Minister when responding to the debate.
It is worth noting at this stage that people involved in all aspects of life will be quite concerned about this matter and will welcome the fact that the State is taking a very keen interest, not just in the question of commissions which are of course very important but also in the whole area of how premiums are set, how the insurance business regulates its own affairs and how it sells and buys within the market. I want to give one example — that is the funding of primary schools at present. A recent survey carried out by the INTO, of which I am a member, showed that under-funded as schools are, 25 per cent of their total capitation grant goes towards insurance costs. Insurance premiums affect all our lives. I pay more on insurance annually than I pay by way of my mortgage repayments. That is significant for someone so young.
Speaking from a trade union point of view the Bill is desirable. I welcome the increased powers the Government are taking on themselves in this area. I disagree with my colleague, Senator Hogan, in that regard. I do not think they are being over-interventionist, quite the reverse. The State should concern itself with the workings of the companies at all levels. As I understand it, the State has attempted during the last number of years to get involved and understand what is happening in insurance companies in such a way as they can intervene before problems arise. In the last couple of years the two great problems which arose were with PMPA and the ICI. I do not believe that what is proposed in this Bill can prevent similar problems arising in future. I hope the Minister will respond to that point.
It is unfortunate that what is being proposed here is not adequate to cover future problems. We must have a more "hands on", interventionist approach, be it to the insurance market or the insurance industry. At the moment the idea of the Government getting year end statements of account and statements of affairs from insurance companies is all very well on paper, but it takes too long to assemble that information, to synthesise it, to make it available and to act on it. I would like the State to work much more closely with the insurance industry because I am sure people will recall in the last number of years scare stories and rumours that spread about an insurance company or about banks. Some years back regarding a number of insurance companies and the Trustee Savings Bank the rumour went out that they were in trouble. Of course, once rumour starts all confidence is lost in the institution concerned. The fact that confidence is lost means that they begin to lose and even if they were not in trouble previously they are going to be in trouble now. That means that, acting on information received if the Department send in a team of inspectors to see what is happening in an insurance company that information cannot be kept quiet and the minute it becomes public it is seen in the public eye as a major problem. It may not be a major problem, but the fact that the team are sent in to investigate means that public confidence in the company will be lost.
Section 14 provides that the Minister may direct an investigation at any time of the business of an undertaking or any aspect of the business of insurance wherever he considers that the public interest or the interest of the policyholders so require. I approve of that idea and I support it, but people may see it again as a sort of fire brigade action, that "there is a problem, let us get in there". If we were getting in there quite regularly it would not be seen as a matter of major import that the Department were inspecting an insurance company and, therefore, there would not be a public response to it. I believe that as soon as you send in that team you can shut down the company or else restructure it completely because nobody will have confidence in it any more except the people who are tied into it by virtue of being policyholders and who cannot get out at that time. It will be seen from this that the Government still see the extra powers coming into force when they consider that a problem exists and they need to investigate the matter and, as I have said, there is no concept here of working hand-in-hand with the insurance industry with a view to being in there before the errors are made.
Otherwise, the difficulty is simply that of enforcement. The Minister states in his speech — or in his notes to the speech — that it is unfortunate that in this country we have not the resources to have perhaps the same input into the insurance industry as have other countries. I take that point. This is a pity and it is one of the problems that I see in the Bill.
With regard to how the Government will enforce, there is obviously little point in increasing powers unless at the same time the Government can properly enforce a system. As I said here yesterday on another issue, I do not want to propose legislation that cannot be enforced and if the Minister is saying that this is as far as we have the resources to enforce I accept that point but I regret it. We need to go a little further on the issue. The past performance of the Department of Finance is such that the case for an independent supervisory authority of all financial institutions is becoming stronger. I will come back to that. I feel that it is a matter of grave importance in this whole discussion about where one financial institution or service begins and the other starts. Nobody knows at this stage. Examples have been given here today of insurance companies acting as banks, banks acting as insurance companies and building societies acting as everything. It is time we had a look at where that leaves us. I will refer to that again.
An Leas-Chathaoirleach
Senator, may I interrupt you. The tradition is that Ministers always in both Houses read their Second Reading speeches. The Chair thought that you were referring to one of our colleagues reading a Second Reading speech. In fact, Members of the House are entitled to refer to notes but Ministers must read the Second Reading speech. That is the system as it always was and will continue. There was a slight misunderstanding there which I presume now is cleared up.
We will discuss it further at another time. It was simply a joust in response to your earlier——
An Leas-Chathaoirleach
It is cleared up.
Thank you for that clarification. I am not too well informed on the whole area of commission by insurers, but I found astounding the figure given by Senator Hogan that building societies can claim up to 35 per cent of a commission while brokers have to live on 12½ per cent. I consider that to be not just a business venture but "white-mail" if not blackmail. I am one of the people tied into this — I have no choice about my house insurance. I am told where I have to take it, which company to go to. It seems that the Registrar of Friendly Societies should have some powers in this area. If building societies are supposed to be friendly societies then they should act in that way.
The problem is also that the Government have gone for self-regulation here in this part of the industry. It should be a statutory type of regulation under the State, not just the industry looking after its own problems. I am totally and utterly confused about the difference between an insurance agent and an insurance broker. I have read the Bill closely and I know what is intended by it, but no matter how anybody goes about it, will it allow people to decide which they want to be? I would like that explained. Section 37 provides that a person has to be a member of a body of insurance brokers and to be in a position to arrange insurance for at least five insurers. That is the broker qualification. The agent's qualification is that he shall hold an appointment in writing from an insurer and that his letter headings, business forms etc. will make this quite clear.
Most people are badly informed on financial matters. Most people do not know how to deal with banks, bankers, accountants or financial institutions and there is no way that the general public are going to know the difference between an insurance agent and an insurance broker. It is made too easy here for people to opt out from one and decide to be one rather than the other. I would like to have that part of the legislation addressed much more firmly. There should be statutory regulations to cover the activities of both. As we have it here, the brokers decide on their own regulations and the agents are just agents of the insurance company. There is far too much leeway there, it is too loose. The problem of defining who is a broker is not really faced. On the one hand there are the established brokers who, presumably, will continue to be designated as such provided they satisfy the terms. On the other hand, there are the agents who will not be able to satisfy the requirements and will, therefore, be defined as insurance agents under the legislation.
In the middle of this is a whole range of people who are loosely referred to as insurance intermediaries. Who will decide which category they fall into? Where banks, agents of banks, building societies, garages, accountants or whoever they happen to be are involved in this area, who is to decide whether they are going to be brokers or agents? Is this decision up to themselves? Will there be requirements which they will have to meet one way or the other? It would appear that it is open to any of these intermediaries to decide for themselves whether they wish to be an agent or a broker and that there is no requirement regarding bonding or professional indemnity insurance which can be made binding upon them if they have this choice. They can just opt for the easier option as I understand it, and I stand to be corrected in that area.
It would not be so bad if there were a total absence of any connection in the legislation for greater levels of commission payments to insurance brokers. As it stands, by opting to be an agent rather than a broker the benefit in the form of commission is the same and the requirements are considerably less. Where is the protection for the ordinary citizen in that? The citizen goes looking for insurance cover and will not know the difference between a broker and an agent. We know here and the law will know the difference between them and the cover and bonding that one is supposed to have, but that information will not be understood very clearly by the public.
A requirement under the Bill is that insurance companies must keep a list of the different agencies. This is quite right and to be welcomed. What about the list of brokers? Where does that come into the Bill? Will their own body keep that list, or will there be a list available to the State? Why are brokers not included in the list which can be seen publicly at any hour of the working day? Is there something in the Act which I am missing in relation to that area? That should certainly be covered.
The two-tiered approach of insurance brokers and agents is unsatisfactory. The word "broker" has no great significance for the public at large and the public will not be aware that they are dealing with a non-broker intermediary and of the implications that it might have for them in that they do not have bonding or protection. If a person is dealing with an insurance agent, under the terms of the Act, his protection is substantially less. How will we make people aware of the differences, apart from their notepaper?
Insurance companies must give a detailed response each year to the Department in terms of information about the company. What we are doing is trying to give that a statutory force. However, end of year information is too late. It will not get us into a position where we can solve problems. There is a conflict of interest within the Department in that the Department have a vested interest in companies remaining solvent. They have a responsibility to see that companies remain solvent. At the same time, they have a vested interest in keeping premiums as low as possible.
These two areas are in conflict. On my reading of the Bill, it would not have stopped the PMPA problems from developing. They were in trouble for years and everybody knew it. The Minister of the day talked with them a long time before they went to the wall. The employees of the company, the Minister, the Department and the industry at large were aware of their problems and of the fact that they did not have the resources to meet the claims, that they were relying on the premiums of the following year to meet the claims of the current year and so on.
There is nothing in this Bill to stop that happening again. If I ring up an insurance company and say I have been involved in a serious accident, that my car is a writeoff and that four people in the other car were seriously injured, the company will have to make allowances for the cost, whenever it arises, of the court proceedings and the damages that may arise. If they put too much aside they are burying their profits and if they put too little aside they could go to the wall. Nothing in this legislation would allow us to know what might happen in a company. How do we get to the bottom of such a problem? I appreciate that the Minister says he does not have the resources to work on a "hands on" basis with the insurance companies but people should not think they are now protected from the type of problems that arose before, because they are not really protected. It can still happen.
The industry will consider that this Bill goes too far and that the State should not intervene as much as it proposes to intervene in this Bill. On the other hand, the workers and the unions representing the workers in the insurance industry will feel that this legislation does not go far enough. We in the trade union movement would say that to wait for something to go wrong before intervention is to wait too long.
As I said earlier, the edges of financial services are becoming more and more blurred. There is hardly any distinction between where an insurance company stops and a bank begins and where a building society stops and an insurance company begins. The financial institutions have varying supervisory bodies over them. We have banks which are building societies and insurance companies acting as banks and the Bank of Ireland does everything. All of these institutions are responsible to different supervisory authorities. The Registrar of Friendly Societies looks after building societies; the Central Bank looks after banks; and we are now proposing another group to look after insurance. What we really need is to be conscious of the developments in the financial world and the fact that all these institutions are tied in together and our legislation should reflect that.
This Bill which attempts to control insurance would be welcome if insurance was developing in isolation, but it is not and the development in the financial world shows that all these institutions are offering the same service. It is not beyond belief that An Post might some day offer banking services. They are moving closer to it. The edges are becoming blurred. If we now have companies offering a complete financial package from insurance, to house loans, to banking services, to buying and selling stocks, what we really need is an overall monitoring body for all financial institutions.
Recently we discussed the question of the financial centre in Dublin. During that debate I said we did not want to get the international financial cowboys moving in. I am worried about something which I read in Business and Finance on 13 August. It is absolutely relevant to this Bill and I implore the Minister to take this matter on board and to see if the Bill can put the regulation of insurance into a much wider context. Business and Finance says:
Looser regulation than in other markets was a major attraction for the European Mercantile Exchange to set up in Dublin, according to one of the directors from Chicago, Bill O'Connor: "Regulatory bodies in other countries place stumbling blocks all over the place."
The stumbling blocks of the financier are the protections for the individual. What he refers to as stumbling blocks are what we would call controls. It goes on:
It is very encouraging to see the different attitude of (the Irish) Government.
I do not find that encouraging, but very worrying. It goes on:
It is very encouraging to see the different attitude of (the Irish) Government.". Financial futures are highly leveraged instruments and both the UK and the American authorities do not allow the sales of certain products developed in the home of futures, Chicago.
"Futures" is obviously the whole market where one can buy and sell commodities whether it be coffee from Brazil, or rubber from the Far East, or simply a Government bond that will ripen to maturity at some stage. This person goes on to say that, following the provisions of the 1987 Finance Act, Irish law would not prohibit the sale of these funds. That is the person on the ground, who is trying to make money on the issue, saying he is coming to Ireland because there are looser controls. We know this. I am not saying that this reflects on what is being planned in the insurance area. I am saying that insurance is just part of the whole set of financial institutions, and we should look for and demand an overall monitoring body so that we do not have international financial cowboys setting up house in Dublin or in Ireland to the detriment of the rest of the population. I think I have pushed that as far as possible. The problem is that in Ireland if we set up some body to look at insurance companies, if there is not a problem already, there is certainly a problem at that point because nobody will believe otherwise, and that will affect the confidence of the public in the company.
In other countries, Germany for example, there is a very high level of intervention by the State. I know that part of the Irish psyche is that we do not like people meddling in our affairs and therefore we do not do it. This is perhaps a racist point, but the Germans are a more regulated race of people who approach things differently. In Germany there would be a large state staff involved in the insurance industry, in the setting up of premiums, in the setting of targets. In all the major decisions there would be constant communication with the state. There is no objection there from the insurance industry. I picked the German example — I could have picked many others — because Germany is one of the countries that governments point to as showing the headline for where we should be going. I am saying that I would welcome what goes on there if we had it here. By being involved very closely with the workings of the insurance industry, the Government would be in a position to see how the companies are working and to report any problems as they perceived them long before the problem became major ones.
To hark back to the PMPA, by the time we were aware of the problems it was too late to do anything. Will somebody please tell me what is in this Bill — because I am saying there is nothing — to stop this happening again? It was those accidents, for want of a better word — I do not believe they were accidents — it was those collapses in the insurance industry that were the catalyst for seeking this Bill, and it does not solve the problem and does not stop it happening again.
I also wonder about this intervention. What happens afterwards? Let us take the position of the PMPA. The State intervened, put in somebody to run the company, guaranteed, in a sense, the running of the company, but does not own the company. Who owns PMPA now? Whose company is it? That is not a rhetorical question. I want to know the answer, because if we are to be intervening in the future, I want to know on whose behalf are we intervening. The Government took over the running of the company but do not own it. Does that company belong to the State at the moment? I know it does not but I want to know who owns it. More important, I want to know who gets it when it is turned around and back in profit. These are not rhetorical questions because we are leading into the same area with this Bill of intervening, putting in a team or whatever, of picking up the pieces. Where are we at that point? Where do we go from there?
It was similar with ICI. I am not absolutely sure of this but we bought it for something like £1 from AIB. It was bad value at £1 for those of us who pay taxes and we shouted and screamed long and hard about it at the time. But it is now being run again and is working again and will soon be back in profit. When do we get our £1 worth back, or do we get it back? Who gets the company when it is back in profit? That area has not been addressed in this Bill and there are people paying taxes who have a right to know what happens to the companies after we intervene.
That brings me back to my first point. It is better not to have to intervene. It would be better to be there already to see how it is working, to anticipate problems rather than to solve problems.
I do not intend to be negative about the legislation. I am putting forward what are fairly heartfelt views about the industry and about the way we should be moving. Those questions about ICI and PMPA are ones that concern a lot of people. I am worried that we are heading into a similar situation again. I know the Bill has started off with the best of intentions. I agree that all the problems specified in the Bill should be sorted out. But some of the areas I mentioned should be taken on board, and I would like to think that the Minister will develop some of those points.
First I would like to compliment the Minister on introducing this Bill. I welcome it because, in general, it offers protection to the insured. Its central aim is to provide statutory protection for policy holders. People look to the insurance business to protect them when things go wrong. They pay dearly for this security. It is a cruel blow then to find that this protection does not exist. Those situations where rogue directors or agents have left members of the public high and dry are far too common. I do not have to go outside my own constituency to meet people who have suffered from the fraudulent action of rogue brokers. Measures taken to combat these injustices are to be welcomed.
Section 37 sets out the qualifications a person must have to act as a broker. He must be a member of a body of insurance brokers recognised by the Minister. It provides also that he must have contracts with at least five companies. I welcome these provisions.
Section 39 (1) requires a broker to hold a bond of not less than £100,000. Sums considerably larger than this have been involved when brokers left people high and dry. Subsection (6) suggests that this figure may, from time to time, be altered by the Minister. It suggests that turnover could be used to set the size of the bond. Should not the bond be automatically related to the previous year's turnover? The onus for having the bond correct would lie with the broker and it would be subject to inspection by the Minister.
Section 40 insists that an insurance broker should keep a separate bank account into which all moneys received by him or her in connection with premia should be deposited. This is a very welcome development in the light of past experiences of proving fraudulent brokers guilty of misuse of premia.
Section 41 deals with the qualifications required by an agent. I welcome the provision whereby a premium paid to an agent is treated as having been paid to the insurers. It offers protection in the situation where the agent does not pass on the money to the insurance company.
Finally, I would like to call for a public register of disqualified brokers or agents to be compiled and maintained by the Minister's office and available to the public at reasonable times in all local authority offices or Garda stations. This list could be published on an annual basis in the national papers.
First, I would like to put on record my objection to the late circulating of this Bill. I received a copy of it yesterday. As a new Member I do not have any idea of how the programme of legislation is presented to the House. We all agree that the Bill before us is intricate and needs detailed examination. In my view the Department have displayed a certain amount of arrogance towards the House and I hope we will not see a repetition of it.
Generally, I welcome the Bill because, as the Minister said, it represents an important step in strengthening and securing the position of the policyholder not only in his or her dealings with insurance companies but also in dealings with intermediaries. Insurance is becoming a major problem for the ordinary consumer and also for employers struggling to survive in a very competitive environment. I am concerned at a number of features in the insurance industry and I should like to put forward concrete proposals to confront this problem. The features in the insurance industry that need to be addressed fall into the following categories, cost, availability, competition and safe practice.
Many things have contributed to the high and escalating cost of insurance in Ireland. I am very concerned about the high cost of motor insurance, particularly on young motorists. There is no doubt that today cars are a necessity and no longer a luxury but, unfortunately, the high cost of insurance is encouraging people to drive vehicles while uninsured. There is no doubt that uninsured drivers are costing the country, and the companies, a lot of money. If we succeed in bringing down the cost of motor insurance we will reduce the number of uninsured drivers on our roads. It is worth noting that the Motor Insurance Bureau of Ireland are paying out £18 million — the equivalent of £20 on the typical insured driver — in personal injury claims to the victims of uninsured drivers. It is claimed that up to 20-25 per cent of drivers are uninsured. The MIBI payments are only part of the cost of uninsured driving. The cost of damage to property has to be met from insurance premia and many innocent victims suffer loss with no compensation.
The legal costs of wrangling over liability absorb 20 per cent of the total claims paid out by insurance companies which is never received by the victims being compensated. It is also worth noting that the difficulty of getting insurance at any sort of bearable cost is becoming very common. In some businesses it is virtually impossible for employers to get cover for employers liability and public liability. More and more employers are being forced to operate without any insurance. This is a frightening development, when one considers the plight of victims of accidents. This problem applies in particular to the small businesses that are finding it very difficult to survive in the economic recession we are going through. I appeal to the Minister to investigate this area in an effort to get a reduction in the cost of insurance for businesses. There is no agreement with the insurance industry for dealing with what are described as declined cases for employer's insurance, comparable with that for motor insurance. Voluntary and sports organisations have found it imposible to proceed with some of their normal events because the terms being quoted for insurance cover is entirely beyond what a non-profit making body could face.
Competition in the insurance business is another area that should be looked at. Recently, the European Court ruled that Ireland was acting illegally in the way in which it tried to keep overseas insurers out of certain insurance business here. This ruling heralds competition from overseas into the Irish market. A move to reduce costs and improve service to its customers is clearly in the insurance industry's own interest. Lack of competition is clearly contributing to the high cost of Irish insurance. In my view it would be helpful to insurance companies, particularly since the passing of the Single European Act, if they were made aware of the market available in the EC. They could benefit greatly in that market.
I should like to point out that the growth in management expenses in insurance companies has averaged over 20 per cent per annum in recent years, about 1.75 times the rate of inflation. There is a huge variation in efficiency within the industry. Among the large motor insurers general expenses range for 8 to 20 per cent of gross premium income. That means that some companies are unprepared for competition and their clients are bearing excessive costs. Management expenses of insurers in the UK are less than two-thirds of those in Ireland. Along with improved efficiency there is also a need for better services to the customer. There are many areas where improvement is needed. There should be much more access for the consumer to information about the terms of his policy, the structure of premiums and the level of commission and service charges so that the consumer can shop around freely. There is need for the preparation of a code of practice for brokers and agents to protect consumers from unfair selling practices and a need for the industry to establish an insurance ombudsman to provide a simple mechanism for settling complaints by clients about their treatment by insurers. Such a scheme has been found to be cheap and highly effective in the UK.
There is a need for the removal of insurance practices that unfairly victimise particular groups. For example, disabled drivers still face a 10 per cent loading that has no actuarial foundation. Even more unjust, victims of untraced drivers receive much lower compensation for personal injury than victims of uninsured drivers. That practice has no logical foundation. Another area of the insurance industry that should be investigated is in regard to safe practice. The traditional approach to quoting for insurance is to accept the risk to be covered as fixed. The main concern of the insurer was to ensure that the client would not find it in his interest to deliberately bring on a hazard. As a result, the structure of insurance terms have not paid sufficient attention to the opportunity to improve safe practice through the structure of premiums. In my view the premium structure should be tailored to give bonuses to those who are willing to improve safety standards, both on the road and in the workplace.
Faced with those numerous problems in the insurance industry some people have advocated dramatic changes in present practices such as the introduction of a no-fault system and the funding of motor insurance by a levy on petrol. Having looked at those suggestions I have come to the conclusion that they offer little prospect of cost reduction in the near future. Those proposals in my view would present numerous problems.
I welcome the decision of the Minister to proceed with legislation to abolish juries in civil actions. I urge the Government to treat this legislation as a high priority and have it into law before the end of the year. The operation of a new system should be closely monitored so as to ensure that it achieves the promised cost savings and that they are passed on in the form of reduced premia.
In my view some sections need to be amended. I have a query in regard to section 31 which states that the holder of an authorisation shall not pay to or credit to the account of an insurance intermediary a commission payment in respect of a policy of insurance until the premium to which the commission payment relates is received by the holder and recorded by the holder as having been received by him. Does that mean an end of the premium payment plans operated by companies, as it would be unfair to ask brokers to wait up to ten months for commission in such cases?
Debate adjourned.
When is it proposed to sit again?
It is proposed to sit at 2.30 p.m. on Wednesday, 14 October 1987.