This Bill is long awaited. It has been described as the most important Bill for the insurance industry since 1936. I would like to think the results of this Bill will be of benefit to the policyholder, the intermediaries, the Government and all who have an interest in bringing the industry forward from strength to strength in the years ahead.
Basically the Bill refers to three areas: (1) the Minister is seeking additional legislative powers in regard to the supervision of insurance companies which is proper and correct; (2) the regulation of commissions which I will refer to at a later stage in this contribution; and, (3) the regulation of insurance intermediaries. While that is very important for the insurance industry, the man in the street is not very much concerned about it. He is concerned about the availability of cover, whether he can get cover at the right price, and whether he can trust the insurance company or the broker, which is very important. That is his main concern in this area of insurance. As a nation we are very much aware of our legal rights. We are living in a litigious environment. I have seen claims in the recent past which have amazed me. Claims against public liability which I thought could never be followed through were followed through and were successful. I can remember some 20 years ago investigating a claim with Athlone Urban District Council. A young boy broke into the abattoir, stole the humane killer and the bullets and injured his eye. He received an award. I would have imagined that could not have happened at that time, but it is happening more and more at present.
We are living in a very legalistic and litigious environment which has a direct adverse effect on insurance costs which the public at large have to pay. There may be some savings for the policyholder as a result of this Bill. The Courts Bill which will come in this session, the establishment of a book of quantum of damages to be used as a guideline in addition to the abolition of the two senior counsel practice and the implementation of the Barrington report should create a greater awareness on the part of the public. All of these things should help to bring premiums down. We can say with certainty at present that our system of awarding compensation to injured people is slow, inefficient and unfair. Anybody who goes to the High Court and listens to a case will find very quickly that there is no such thing as liability, whether there is liability or not. It just does not count. An award is made, full stop. It is very expensive. While all of these things are for another day, it is of no harm to refer to them in this Bill.
Employers liability cost for manufacturing industry in Ireland is now £30 million higher then comparable costs in Britain. Funds for manufacturing and, indeed, for trade generally which might be used to create more jobs or to increase output are now being used for increased public liability and employers' liability insurance. I would like to make this small point, but a valid point. Last year in Westmeath County Council we almost had to have a second estimates meeting because of the increase in our public liability and our employers' liability premiums. Where that exists, people are concerned; the Government are concerned, and understandably so. The whole insurance scene has changed dramatically over the years. I can remember years ago when insurance brokers — and large ones in particular — could get credit on the basis of six, eight or ten months. Business was canvassed on the basis of the length of credit available but, unfortunately, or maybe fortunately, the year of fiscal rectitude has arrived with a bang. Credit is certainly limited; commission is reduced; and the whole insurance industry has changed dramatically in that period.
The Minister and the Government rightly in this Bill have attached a lot of importance to the question of the examination of insurance companies' affairs. I was not aware until quite recently that within the Department a number of companies were selected for study by outside consultants in regard to the examination of their annual returns. I welcome this. I can remember saying at the time of the PMPA collapse that, had the people who investigated the Vehicle and General in England, a large insurance company with £25 million motor insurance at the time, investigated the PMPA, they would have been asked to stop trading years before it actually happened. Therefore, it is right and proper that the Government should involve themselves in this area and involve themselves in a very real and practical way. It is right that the Minister, as he does in section 15 of the Bill, should take unto himself power to intervene in the running of the business of an insurer which has encountered financial difficulties, or which is known to have encountered financial difficulties. Very often within the business it is known what is happening long before it reaches the desk of the Minister, or the Government become aware of it.
Although not perhaps a matter for insurance brokers, one aspect of the Bill which I welcome is the fact that I believe the kiss of life might well be given here to the industrial branch of assurance. It is a business that has been with us for perhaps 100 years. The penny policy has buried many an Irishman. It was the cornerstone of the development of companies like New Ireland and Irish Life. The Minister knows it has been a neglected area of life assurance over the past few years, which is a pity. Certainly, when you consider what that type of industrial branch assurance did for the companies I referred to and the type of money Irish Life took in in the last single premium bond which they advertised and which was so successful — hundreds of millions of pounds — and compare it with the good old days or perhaps the bad old days of the penny policy, it is certainly a contrast. I am glad it is not neglected in this Bill. I am glad it is being revived and getting the kiss of life. It certainly needed to be revamped in a real way and that seems to be happening in this Bill. Change in industrial branch assurance is necessary. We know that the value for money of industrial assurance has declined but, nonetheless, the changes which are now being made will be for the benefit of that type of business within the life assurance field.
We might well ask: why should the Minister have an interest in commissions? As he explained, it is the policyholder who will pay eventually for commissions but, at the same time, I have to make this point. For a broker, operating as he does, with a staff, an office and heating, paying 5 per cent on commissions is crazy. I would like to think that, when the Courts Bill is enacted and we have a better insurance climate, a more profitable insurance climate, the Minister, rather than perhaps taking commissions away, may decide that an over-riding commission of 5 per cent or 7½ per cent, or whatever, might well be desirable. In the future brokers might look for more commissions for their business.
The whole area of bonds — and I am not referring specifically to any section — has caused some concern. I always felt it was unfair to ask for a £100,000 consumer bond from a broker with, say, £½ million of a turnover and the same bond from a broker with £10 million of a turnover. That seems wrong. Therefore, naturally I am pleased that the Minister has indicated that this might be dealt with in another way. I welcome this change which I hope he will make on Committee Stage.
The position of insurance agents and brokers is well documented in the Bill. That is a worrying aspect of the Bill because the treatment of tied agents as against the treatment of brokers is somewhat discriminatory. First I will talk about the tied agent. While many people have different ideas of what tied agents are, I have no doubt that in the future the Bank of Ireland will have their bank managers purely as tied agents. Any of them who give business to Irish Life or Abbey Life or Standard Life will have to suffer the consequences. Obviously they want the business for themselves, which is reasonable and fair. I am not talking about that type of tied agent. If I wanted to I could advertise in the area of life assurance and earn £10,000 in my spare time. I could then bring in housewives, Army personnel, and so on, give them a crash course in insurance and let them loose on an unsuspecting public selling large single premiums, mortgage protection, endowment policies and so on and they would be paid a commission. That is not doing the industry any good.
When I did my ACII examinations the most important principle I found was uberrima fides, of utmost good faith. Utmost good faith must still continue to be the very basis of all insurance contracts. Unless people and agents have a love for the industry and have an awareness of the industry, we will have cowboys and that is what is happening in many cases. We have to look at that tied agent. It is wrong that people like that should be let loose to take premiums in the manner I have described. The question of broker versus agent within the Bill is obviously a matter for debate. I regard myself as a typical country insurance broker with an interest in the business, with a love for the insurance industry because I realise what it means to industry generally. It is regarded as being very important in the whole industrial life of this country and of the world.
This Bill, as it stands without amendment, would cost me a lot of money. There is the professional indemnity bond and there is a certificate of solvency. There is the consumer bond and membership of an insurance brokerage body. I accept that I do not have to be, but if you are an optician and there is an opticians' society, you like to be part of that society. If you are an ophthalmic surgeon and there is an ophthalmic surgeons' society, you like to be a member of that ophthalmic surgeons' society. Therefore, brokers like to be part of their organisation and help to build it up and run it. The tendency will be — if people remain brokers — to try to remain members of these brokers' associations.
Section 7 of the Bill refers to fees which are not defined. I must conclude that if a brokers' organisation has, say, 200 members the Minister for Finance can say he wants £500 a member. That would be put onto the insurance broker. It will cost the small, average, country broker a lot of money before he writes one single form. Compare that with the agent who has no responsibility within the Bill. He is looked after clearly by the insurance company. There ought to be a greater differentiation. I anticipate that many of the insurance brokers I have referred to will cease to operate as brokers and will go back to being agents. They will have none of the costs we are talking about and will trade merrily with four companies. They might well be able to do it. I would like a closer look to be taken at the role of the agent and the number of agencies an agent can actually possess. My own view would be that it should be one life and one general. Otherwise, he is prone to the accidents of any broker. He is prone to professional indemnity. He still has the same problems.
An effort must be made to control and make as small as possible problems an agent can create for himself, for the policyholder and for the consumer. The question of an agent, whether it be one life and one general, having a bond or PI is a matter for debate but, one way or the other, if they do not have it, and it is not required within the Bill, the company who appoint these agents will have to give very strong guarantees that they will take over the full liabilities of the agent and if there are misdemeanours that they will be honoured by the insurance company. Otherwise they should be treated in the same way as the broker and have the professional indemnity and the bond and all that goes with it.
There are other sections in the Bill which we can talk about on Committee Stage. The Explanatory Memorandum — which I find quite excellent — reads as follows:
Section 31 prohibits commission payments being made in the form of benefits-in-kind or loans.
This I agree with totally.
It also prohibits any commission being paid until the premium has been received by the insurer.
I do not know what is meant here. My own definition — and I have read it twice for many weeks of the year — is that the normal way for commissions to be paid is on a net basis. In other words, if the account of company X is for £5,000 — and let us assume it is a 10 per cent commission — that is £500. The insurance representative or the company get £4,500 rather than getting £5,000 and are paid back £500 by the company. That is something we can look at on Committee Stage. There is a lot in the Bill that we can talk about on Committee Stage. As I said at the outset, we have waited for this Bill for a long time. It is reckoned to be the most important insurance Bill since 1936. Therefore we must not rush into it. We must take our time on Committee Stage. We must examine the Bill in great detail and hopefully we can produce a Bill which will give the insurance industry confidence, give the policyholder, the Minister and all the interested parties confidence that they can go forward for another 50 years in the knowledge that they have a worthwhile Bill which we can all stand by.
