Insurance Bill, 1987: Second Stage (Resumed).

Question again proposed: "That the Bill be now read a Second Time."

Mr. Hussey

Last night before the debate adjourned I was dealing with the problem of young drivers trying to get motor insurance. It is high time something positive was done to help those people. Most of them are anxious to comply with the law and have insurance but the exorbitant prices charged by insurance companies puts insurance outside the range of most of those young drivers. If they are under 25 years of age most of the insurance companies do not want to know about them. There is a big difference in premiums between here and Great Britain. I have compared some of the premiums quoted for drivers in Great Britain and those quoted for drivers operating in the Republic and there is a big difference between them. Obviously there is something wrong with our claims experience.

Another area of contention in recent years has been liability insurance, both public and employers liability. Most of the insurance companies operating here are reluctant to take on liability insurance. This is making it absolutely impossible for business people, for people involved in the hotel business and, in particular, for publicans who are trying to provide entertainment at week-ends to get public liability insurance. For those who can get it the prices are so high that they just cannot afford to pay, particularly now when the trade is more or less dwindling and the turnover is not as good as it was some years ago. The same applies to small building contractors. In the past year or two I provided public liability insurance for small building contractors where the premiums amounted to over £3,000 and in one case it was over £4,000. Unfortunately contractors who have contracts with county councils, public bodies or semi-State bodies have to have public liability insurance before a contract can be signed. In some cases this can increase the contract price by more than five times. They cannot do anything about it. If they do not have public liability insurance they will not get a contract.

The insurance companies say they are meeting big losses and in 1985 this risk alone showed a loss of £34 million for the insurance companies. Obviously something will have to be done about this. It will be absolutely impossible for business people, contractors or engineering firms to continue in business if the price of insurance continues to rise as it has done over the past few years. I am glad the Government have decided to tackle the area of costs by proceeding in the next Dáil session with a Bill to abolish juries in personal injuries cases. I understand that 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. When that legislation has gone through it will help in no small way to reduce the cost of insurance. That is what the man in the street is concerned with at present. He wants to get a cheaper premium. He wants to remain within the law but he wants to get a premium that he can afford to pay. That is what it is all about.

The steps outlined by the Government which they propose to take in this session will help in no small way to reduce some of the costs. We all know that the insurance business is very important for the economic life of this country. We do not want to see insurance companies collapse. We have had two sad experiences of that before. We want to see the industry established in a strong and viable position. I believe that the legislation now before the Seanad will help to strengthen the industry. It will help to tidy up many of the loopholes that existed there over the last number of years. It will help the people involved in the industry both the insurance companies themselves and the brokers and agents who are all affected in some way or another by this legislation. The measures now proposed in this Bill will help the industry enormously. When this Bill has passed through both Houses and has been put into effect the industry will be better because of it. I sincerely believe that and I have discussed the proposed legislation with people involved in the industry and they are all looking forward to this legislation. It may create problems for brokers and agents by way of increased costs, for example, if they have to get a bond, if they have to get professional indemnity insurance and all the other things that they are expected to provide under this legislation. It will add to their costs but in the long run it will be better for the industry and it will be better for themselves. It will be better for the general public because they will feel that they are dealing with the brokers who are bonded, secure and who are not going to fold up overnight and go away with the funds or in some cases with the money of the general public which they have collected.

Mr. Harte

I would be the first to admit that the affairs of insurance companies are managed by very responsible people. This in itself is all very well but so far as the supervisory authorities are concerned the system still depends largely on the competence and honesty of those who prepare the returns and even more so on those professional people who certify the returns. I do not think that this is adequate. Therefore the Bill is welcome for what it is trying to do in respect of additional supervisory powers. There were of course powers there and they were availed of relentlessly by former Ministers, Deputy Cluskey and Deputy O'Malley.

The insurance business is complex particularly when people have the right to spin off into other enterprises. More is needed to help to bring problems to light more quickly. When you embark on a lot of enterprises, spill-overs and so on, it is not always possible to keep a tight grip on the supervisory aspects. Something extra is needed. In this sense it may be needed not only in the insurance area but also in respect of companies as a whole.

I would find it difficult to separate one company from another whether that be an insurance company or otherwise. For this reason there is a special need for some sort of a companies commission rather than the Minister having the whole onus of responsibility of trying to get things brought to light fairly quickly. Since one of the divisions of the Department of Industry and Commerce probably would already be concerning themselves with this aspect, those civil servants with the expertise could be supplemented on an insurance commission by other people who have great expertise and experience, people who know the city as it were. This should be the case not only in insurance but in linking insurance with other companies. I do not want to overlap into the Companies Bill but I think it is the same thing.

This commission would be the principal source of advice to the Minister who in the first instance would appoint them and would set the guidelines and directions. It would be compatible with the Minister having the responsibility and at the same time the commission would be independent. That would take us out of the situation where in the PMPA, for example, the then Minister Deputy O'Malley had great difficulty over a long period of time in getting the person responsible to co-operate and be more revealing about what was going on and to come down the line to help him to put things on a right footing. Of course he was resisted all the way. One of the reasons the resistance took place was that the Minister himself, because he had not got such expertise as a commission who knew the city, even though he was warned he was not given sufficient time. A commission would bring matters to light rather more quickly. The idea would circumvent the need for constant Ministerial interference which, as the Bill is written at the moment, will be called for. This is good legislation but it will mean that the Minister will have to get involved on a day-to-day basis. Guidance and direction by a Minister is one thing — people should always be open to this — but taking guidance and direction into account, Members of the Oireachtas and the public in general would be dealing with a commission where people would know more of what was going on.

I do not think the supervisory authority as it exists at the moment has the range of options that could be given to a commission. The options are contained in the Bill but the Minister will not be able to cope with that range of options on a day to day basis. The disclosure aspects of the Bill could be kept up to date by such a commission. It would also serve a useful purpose where information of a public or social type is required. As I said, I cannot see the difference between the companies and the insurance industry. In the past they have had ample opportunity for self regulation and have not taken it. They have not taken it as seriously as they might. However, the Bill recognises this in the sense that there is more Ministerial concern but I believe the Minister has enough to watch out for and his watch dog should be this type of commission with city expertise to supplement the work of the civil servants who have done a very good job but have been limited in some ways.

To work effectively the commission would have to have sanctions available to them. I do not mean that they would have to apply the sanctions but if the Minister applied the sanctions, in essence what would happen is that they would be given the powers to take steps for enforcement. The question of regulations could also be subject to consultation and some initiatives could be taken by the commission to assist the Minister in respect of regulations. This would be the best way to protect the Minister's supervisory powers. I still insist it is too big a job for the ministerial staff. If we look back at the uncertain solvency of non life insurance companies we have to admit that it calls for greater diligence. I believe the Bill is trying to provide that. All I am doing is putting a point of view which I think will advance and strengthen those powers of application. Greater diligence could be applied by the commission who would be specifically there to deal with insurance and companies. I cannot separate the company from the insurance.

Insurance is a serious business. We have to refer to the PMPA when we are dealing with insurance. It is a company that can not be left out of a debate such as this and we have to learn from history. It is a frightening fact that perhaps 450,000 people were going to be affected by the loss of policy. I have had experience in the trade union movement. Many officials joined a certain insurance society many years ago and it went broke and they had no cover for the year. They had to renew it. It is a very serious step for people when their car insurance is snuffed out like that. It is not always possible for people to find £600 or £700, when the occasion arises, for full comprehensive insurance to cover all aspects of what they are doing, whether it is earning a living for themselves or trying to protect their family. It is a very substantial amount of money to be taken out of a family without any fall back.

I know that has been remedied. In fact, it was remedied in the Bill introduced by a former Minister Deputy Cluskey. On that occasion in the Dáil I think everybody supported it. That is why I think it is necessary. It emphasises the fact that an earlier warning light and closer vigilance are needed to assist the Minister to give effect to the contents of this Bill and perhaps add to it.

The Cluskey Bill took care of certain rights but what we were dealing with there was emergency legislation and obviously it could not do much more than see to it that people did not have to scramble for alternative cover. It did a few other good things too. It highlighted the problem. Credit is due to all the people in the Fianna Fáil Government at the time and also to Deputy Cluskey for living with the problem and finally bringing it to a head and protecting the public interest. The supervisory powers were there too and if they had not been used and used well the situation would have been disastrous. It is a very serious situation. The supervision process by the Minister's Department was good.

I still think the range of options needs something more than that the Minister be left with the onus — rather than having this kind of expertise there for him — not only to deal with insurance but to deal with the question of bringing problems to light at a faster pace. Because of the way companies go and the way difficulties arise for business people in recession periods it is quite a serious matter and there is an obligation on us to do as much as we can to get this brought to light faster. Under the powers that existed for Deputy Cluskey and Deputy O'Malley, the problems in the PMPA went back to about 1977 and it was 1983 before they could be brought to a head. In other words, I do not think the PMPS, the provident society, would have been in as much difficulty had we these type of powers with a supervisory commission in existence. If it had gone much further the consequences would have been disastrous. I take this insurance matter very seriously indeed. The will of the Oireachtas was defied by one man. Perhaps it was the Minister he was defying, but the Minister was acting on behalf of the Oireachtas. He was defying the will of the Oireachtas to run down the provident society side of it when in fact he was advised to do it a long time before that by the Minister responsible to the Government.

I have not much more to say. This is a very good Bill. The 1983 Bill went a long way towards dealing with the question of appointing administrators through to an insurer and so on to help to achieve a viable position. I do not think we can take the risk again even though these powers are extensive. Because we have increased the powers and extended them, we should take a much more serious look at the insurance scene. The Minister needs that backup support and I advocate it now. It could well be argued that the present supervisory authority, the Minister's office and the civil servants, is adequate. I do not think it is. If it is not hived off already there will be a separation in the Department of Industry and Commerce and that separation would be supplemented by more expertise on the question of insurance. The Government might take time to think about the value of it and the whole area of company law. It is quite a serious matter. We are talking about compensation funds, the Minister's power, and the type of sanctions that can be applied. It is very extensive and I do not think the situation is adequate.

Finally, I would like to say that probably the most serious aspect of the problems in the PMPA at the time — and this could apply to any insurance company but particularly to one that grows to the extent of the PMPA was that it got out of hand and became over ambitious. In that case 2,000 people could have lost their jobs, a prospect that would be very serious at any time but even more serious in times of recession. The commission who have expertise in the field of insurance should be supplemented by experts who have a knowledge of the City and extend beyond insurance. We should think of that other operation, too, and regard the two as one for the purpose of providing greater vigilance and greater assistance to the Minister who will not be able to apply the contents of this Bill on a day to day basis without some substantial assistance.

Mr. Fitzsimons

I welcome this Bill on a number of counts. It was prepared by the previous Government and it is courageous and indeed proper that it be brought forward in this way like the Companies Bill and other legislation. I welcome it also because it has been introduced in the Seanad. I am sure it will get the attention that all other Bills introduced in the Seanad have received and that when it leaves the Seanad it will be a far different Bill. I welcome it also because it is long awaited and very timely. It is a Bill that requires close study but in order to make a meaningful contribution in this House it would be necessary to have some expertise or knowledge in that area. Since I do not have such qualification, I will confine my contribution to some comments on different sections of the Bill.

In his very comprehensive introductory speech the Minister told us that the Bill as published has three basic objectives, that these are:

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.

This, more or less, corresponds to the information given in the explanatory and financial memorandum. I feel that a fourth objective could be given for the Bill as published, that is, that elevating the status of the broker through virtual legislation under sections 37 and 38 would have a very meaningful and positive contribution to the insurance industry. Unfortunately, it seems that sections 37 and 38 are not being proceeded with or, in any event, will be amended. My understanding is that while the Bill has received a very warm welcome in the area of insurance, the brokerage areas await with some anxiety the amendments to those and other sections to which the Minister has referred.

As nothing more than a positive criticism of the Bill, I feel that perhaps when a certain period had expired, when the Bill before us was printed and changed from a Dáil Bill to a Seanad Bill, it might have included the variations and amendments the Minister referred to. There is a certain anxiety, not knowing what those amendments will be but in a Second Stage speech it is necessary almost to omit any reference to those sections.

Senator Hussey dealt with the cost of insurance. This is a very important aspect. I recall that in this House we had a debate on the insurance problems of small businesses — the Fifth Report of the Joint Committee on Small Businesses which was a very comprehensive report. Perhaps this has very little relevance directly to the Bill but in the long term and in general it must have some implications. In that report, on page 61, the committee referred to legislation on insurance broking and I quote:

The forthcoming Bill to provide for the regulation of financial intermediaries should stipulate (1) the establishment of an insurance brokers council which would have official recognition and be responsible for the registration and conduct of brokers, (2) Minimum solvency ratios for brokers and disclosure as required by the Department of Industry and Commerce, (3) That each registered insurance broker carry compulsory professional indemnity cover and (4) a contingency fund to insure full protection for all clients of registered brokers.

It is interesting that the first recommendation is for the establishment of an insurance brokers' council but it seems that this may not be forthcoming. I await the Minister's reply with regard to this. Obviously the committee felt it was most important that this council be established. Furthermore, on page 58 of that report there is reference to the educational qualifications for insurance brokers. Again, I quote:

While acknowledging the contention of the insurance brokers that insurance is becoming an increasingly complex and specialised area we were struck by the lack of any formal minimum educational requirements for insurance broking. We recommend that the proposed insurance brokers council arrange at the very least third level part-time release courses with appropriate VECs leading to a qualification without which an individual could not gain membership of the council.

In the view of the committee that was considered very important. I hope that the amendments to be introduced by the Minister will recognise this report and the necessity for the legislation as recommended in it. I appreciate that the Minister in his introductory speech has given us an assurance that legislation will be introduced which will result in reducing the cost of insurance. The Minister stated there was an inter-departmental committee which made recommendations and I hope the views of that inter-departmental committee, together with the views of the Oireachtas joint committee, will be taken into consideration as well.

Through the influence of a colleague who is a broker and who is on the Cean-annus Mór Urban District Council I had the advantage of meeting a member of the National Insurance Brokers' Association to get their views. Of course, a submission has been made by this association to the Minister and I am sure he is familiar with all of the details. Other Members of the House have also met members of that association, as is normal practice when Bills are being introduced. I do not have expertise in this area. Therefore, I will refer briefly to a few aspects of the Bill and ask the Minister to take account of what I say and perhaps refer to some of these matters in his reply.

In regard to section 7, the Minister stated that fees would be simply used to defray the costs involved with applications under sections 37 and 38. In a sense it is pointless to make an issue at this stage of fees since sections 37 and 38 will be amended, but I hope if fees are introduced they will be simply to defray these expenses and that they will not in any sense or at any time be used as income.

Under section 12 there is a provision that the Minister may make regulations for the proper exercise of his functions under the Insurance Acts in respect of the valuation of assets of an insurance undertaking. It is contended that this could have a knock-on effect and would reduce the credit available to brokers. Perhaps this could be expanded on on Committee Stage. Overall the Bill will get more attention on Committee and later Stages but I mention it in passing and perhaps the Minister would take it up in his reply.

Section 16 deals with prior notice and display of policy terms and premium rates. This is excellent. It has the support of the industry and all the members of the industry which the Minister referred to in his speech. There are some companies who do not make the rate books easily available to the public. It is very difficult to understand why this should be so. In other countries this is not the situation. It would lead to a more efficient and professional service if those rates were available. As I understand it, motor quotations and other quotations are available instantly in the United Kingdom market. I do not see why this should not be the situation in Ireland.

Section 28 deals with the insurance compensation fund. Other Members have referred to the situation with regard to the PMPA. We are all paying an extra 1 per cent levy at present which amounts to £11 million per year. Again the Minister has dealt with this in his contribution. Section 28 (2) states:

" `person' does not include a body corporate or unincorporated body of persons.".

Therefore, it seems that small businesses, such as the small grocer or the publican are excluded. It is difficult to understand why this should be so. They are paying premiums the same as individuals and I would make the suggestion to the Minister that perhaps it would be better to reduce the cover but to include all.

Section 30 deals with the power to require reduction in commissions. I have no criticism of this except to say that perhaps the argument could be developed on Committee Stage. It is unlikely that there would be any change in this area. It seems perhaps to be equated with payment. Obviously in the work situation the better a person is paid the more efficient one would expect them to be. While the Minister has said that in general it is the policyholder who pays for the difference, or the service is reduced to some extent, I feel that some argument could be made to show that this is not always so.

Section 31 deals with the prohibition of certain commission payments. I welcome this in so far as it is intended to prevent circumvention of the commissions' agreement and that it prohibits non-monetary inducements. I would sound a word of caution that it should not stifle co-operation in technology, marketing and product development, which is important at this time. In the area of insurance, technological advance is most important and advantage should be taken of up-to-date technology. I hope this prohibition would not stifle the development of insurance companies in the technological area, for example, in the provision of software or whatever is required to keep up-to-date in the computer area. This should be taken into consideration.

Under section 31 (2) the timing of commission credits is dealt with. There are two sides involved in the insurance industry — the life and the non-life. The Bill does not differentiate between the two. The case has been made that just this one section falls flat in the non-life or the general insurance area. It seems that the theory of having to wait is wrong and the present financial difficulties have brought about a situation where a client may use premium payment plan facilities. There is a genuine difficulty here for brokers. Perhaps this section could be amended or removed although it is considered quite acceptable with regard to life insurance.

Part IV of the Bill is regarded by the brokers at any rate as the real crux of the legislation. The Minister has dealt fairly comprehensively with this matter in his introductory speech. The case has been made by the brokerage associations that it will be less costly to supervise the members of their associations. Therefore, members of the NIBA, for example, should have to pay less in fees because they would require less supervision by the Department. This is logical and reasonable.

As I have already stated, amendments will be introduced here and the section will be replaced. The people ask what the replacement will be and whether it will be effective? Professional indemnity insurance will not become a legal requirement to operate as a broker and I understand that all members of the NIBA have professional indemnity, which is also in the interest of the insurers, the people who pay for the policies. It appears there is no sense in any association providing professional indemnity if those who are not involved in an association do not have to make this provision. In general if the association do not get the support of the Government they do not see why they should continue it, and this is reasonable. The Minister stated in his speech:

However numerous individual brokers made it clear to me that for various reasons they would not be prepared to join either of the existing broking bodies.

The Minister will be in a better position than any Member of this House to know the numbers involved, but this appears to be a case of the tail wagging the dog. If the Minister feels that it is in the interest of the industry to go ahead with sections 37 and 38, while taking into account whatever representations are made by any of those bodies, it does not seem right that some individuals who perhaps for good or not so good reasons decided they would not be prepared to join any of those bodies. I do not see the logic of omitting two sections or changing them radically, if the reasoning hinges on individual members. I am sure when the Minister has said numerous individuals have made representations the number would be quite large. I would be interested to hear the Minister's reply with regard to this problem.

Section 39 deals with the insurance bond for brokers, the compensation bond or fidelity bond to protect the consumer against fraud. The Minister dealt with this very fully and there is nothing in that to which I would take exception.

Section 41 deals with insurance agents' qualifications. The agent has an important role. The broker associations have made a very good case to limit the agent to a maximum of four agencies. If you take four of the top insurance firms, an agent having four agencies could be dealing with firms who cover 80 per cent of the insurance in this country. The broker has a more costly undertaking than the agent. A broker, for example, must have a bond. He must have professional indemnity. To be a member of a brokerage association, he must have certain qualifications and experience, and he must be responsible for his actions. There are some very good agents, and I have dealt with agents over the years and I have got very good service, and at times when money was scarce the agent I dealt with for car insurance, for example, was prepared to take the money as I was able to pay it and a personal relationship existed with the agent. Nevertheless the agent does not need to have a bond. He does not need to have professional indemnity. He does not require any qualifications. He can become an agent without any experience. The companies are responsible for his actions. This is a problem where an agent would have more than one agency. In circumstances where an agent might default or forget to forward completed application form proposals or in some way be responsible for the witholding of those, it would be difficult if that agent had more than one agency to determine which company should be responsible. To limit the agent to a maximum of four agencies is reasonable and an agent who has more than four agencies should be a broker.

I wish to refer to industrial insurance business, which is covered in section 22. I welcome this legislation. Coming from a rural area I know the insurance man was a very important individual in the countryside down through the years. I would not say he was as welcome as the postman or some other individuals who called regularly but nevertheless he fulfilled a very important role. The weekly premiums were collected on a door-to-door basis and the sums assured were always very low. The Minister has covered this very comprehensively. The situation has changed, we have credit unions and more people have cheque books and it is a waste of time for insurance agents to call around when the sum assured is so low. I welcome the increases in the Bill. It is interesting to note the Minister's figures with regard to the decline in this type of assurance.

I welcome the change with regard to assets. I do not see where any significant difference arises but obviously those in the insurance business feel that it will help and I welcome that also. The frequency of collection will be changed to not less than two months, which denote the changing times and the change in trends as I am sure that it will give a fillip to the industrial insurance business.

I welcome the Bill for the reasons I have mentioned. It is very important legislation and I look forward to the Minister's reply and the remaining Stages of the debate, I am sure that when it leaves this House it will be much different from the Bill we were presented with at the start.

Mr. B. Ryan

I will be extremely brief. I am glad the Minister is seeking to strengthen the powers of supervision in this area and I am glad he will be empowered to regulate commission for intermediaries. I developed over my adult life an increasing scepticism about self-regulating professions, whether it be my own profession of engineering or other professions such as law, medicine and so on. I am not at all convinced that the consumer of any of those services is ultimately well served by a self-regulated profession. Originally, some of these proposals were put forward and were then dropped because the profession undertook to deal with them in a self-regulating way. The experience of the lay person dealing with many of these professions would suggest that, whatever the good intention behind self-regulation, the experience is that self-regulation means self-interest and that obviously is neither in the interest of the consumer nor in the interest of the efficient operation of services or professions within a free market economy — whatever my views on that might be, but I will come to that in a moment.

The things that insurance companies get away with never cease to amaze me and there seems to be a continual need to pursue, particularly in some areas, the extraordinary methods they have of avoiding or maximising the payments of people. One that came to my attention recently was the experience of somebody who had had a no-claims bonus on motor insurance for a considerable number of year. He went abroad and was not an insured motorist for a couple of years and on his return he was told that as he had not had insurance on a car for more than two years he would lose all his no-claims bonus and would be treated again as a novice driver. I would defy any insurance company to produce evidence on the basis of claims made against them to justify that sort of loading; in other words, to produce evidence that people who had not been insured for a couple of years became immediately a higher risk to the extent of losing their entire no-claims bonus simply because they were not insured for a couple of years. I find that astonishing and I do not believe that there is any evidence to sustain it. It is simply another little trick by the insurance companies to extract a few bob from people in an area which they have, because of the law, something close to a monopoly.

We also ought to reflect a little on the nature of insurance and what it is all about. It reflects philosophically the fundamental insecurity of human life, at least in the area of life assurance. It is interesting that in Sweden there is a remarkably low level of savings and there are two reasons for that. First, Swedes pay an extraordinarily high proportion of their GNP in taxation and, secondly, in many areas of life people in Sweden do not feel the need for insurance because of the security that a welfare state of the scale and comprehensiveness that they have offers to them. People there do not feel a need to have substantial life assurance and this reduces the level of savings quite dramatically. The analysis I am relying on for that information comes from an article I read in The Economist some months ago. Many people in Ireland would find that astonishing and quite appalling and if it did not work they would assure you that it could not work, because from commentaries on recent events many people feel that certain things are impossible. Many of the things that we were told were impossible are working quite efficiently and successfully in other areas.

Insurance is now an enormous business. Large sums of money are paid by people in all areas of life, for pension, life assurance, general insurance and, the most obvious one, motor insurance. I agree that the motor insurance companies are dealing with an area of high risk and low profitability but the whys and the wherefores of that is another day's work. Huge sums of money are available to insurance companies and those huge sums of money can become an instrument of power in our society. That is why I welcome the decision to extend regulation in this area because, while it may be limited and only on the periphery, it gives rise to one of the fundamental problems western society is beginning to notice.

The whole deregulation of the area of the financial markets and the interaction of pension funds and institutions on the financial markets is to considerably increase the capacity of those areas to determine the course society must take. The mythological marketplace which welcomes a Government decision or does not welcome a Government decision is not some sort of weather vane of public opinion with an infallible capacity to understand what is good and bad for all of us. It is a small group of people with a particular form of collective self-interest and that collective self-interest, in the words of The Irish Times, recognises no imperative either of patriotism or politics and that is the underlying reality of where all of us, of necessity, have to lodge considerable parts of our income in order to secure ourselves, our homes, or our children.

The underlying distaste that I hold for this whole area is that the real motivating force behind all of this has got very little to do with my or our collective wellbeing or security and a lot to do with the advancement of the wealth and power of a relatively small number of people in our society and in western society generally. If I was to draw an extreme analogy, the regulations here are on the perhiphery of the business and they are somewhat like regulating how much one pays to get into a brothel while ignoring what goes on inside. Sooner or later in our society — and probably later with the way we are going — the power of institutions to dictate what Government can and cannot do will have to be confronted and sooner or later, the fears of people for their security, old age, health and their children's education, that are now the stuff on which large-scale insurance packages are based, will have to be confronted. The presumption that these are all matters for individual decision and that the sense of collective solidarity has no role in the future will also have to be confronted.

Nevertheless, I am glad we are moving in a direction which is not fashionable in western society. It may be that we are just catching up with a minimalist level of regulation but I am glad we are moving in that direction. I hope that at some stage that somebody will confront the fundamental question of what sort of power the control over huge sums of our money gives to a relatively small number of people, what sort of considerations motivate these people, whether those considerations are necessarily as compatible with the national interest and the interests of all of us as many would have us believe and whether the sort of power they have is appropriate is all.

I am glad we are moving in the direction which is opposite to the fashion. A slightly sordid image has been around in certain matters to do with insurance because of the collapse of the PMPA, the extraordinary mismanagement of their affairs by AIB, which resulted in the State having to rescue them and, on the other side, the experiences of ordinary small people with dubious insurance brokerages with a very unsavoury record. All of these things deserve more scrutiny; all of these things deserve the backup of legislation. At the end of it, and underlying it all, I am particularly happy that we are moving further away in this legislation from the idea of letting a profession regulate itself.

I encourage the Minister, with his interest in things like competition and prices and all those areas, to look at all of the professions on the whole concept of self-regulation, self-regulation of the legal profession, and the medical professional itself. It is both fashionable and popular. I have a profound instinct that, when you have a minority group with a monopoly in a particular area of professional activity and they are in favour of self-regulation, the rest of us who have to depend on that service have good reason to be suspicious. Competition is the best quality a free market economy has to offer the consumer. It is not necessarily the most important quality that a society ought to have, but it is the best one.

It is an interesting fact that many of those who most talk about the value of competition operate from professions where that is the one thing that is almost entirely absent from the professional activity, that is, competition on the basis of quality and price of service. Therefore, since we are talking about regulating one area of activity, perhaps the Minister might, at some stage in the future, address his interest to the other areas of business and professional activity where so-called self-regulation is no more than a protection of what would be in other areas described as a closed shop or antiquated work practices, or one or other of the clichés used to describe certain areas of the workforce.

Mr. McKenna

I welcome the opportunity to say a few words on this Bill which, it is being said, is the most important legislation on the insurance industry in the past 50 years. The Government are very anxious and eager to regulate the insurance industry. Progress in that direction has already been made in relation to the commission's agreement between the Irish Insurance Federation and the Minister. It is publicly acknowledged that the cost of insurance and of manufacturing this product — it is a product the same as any other product sold in the marketplace — is too high. The cost of administration and distribution of the product, particularly in relation to life insurance based products, is higher than it should be. These factors have shown the urgent need to rationalise the insurance industry. These issues have also concentrated the minds of some insurers to think in terms of direct sales in order to hold on to or increase their market share in the future when competition will come from the banks as well as from building societies and any other financial institutions competing on a regular basis for the regular saver's money.

In that regard I can understand and appreciate what Senator Fallon, Senator Hussey and Senator Fitzsimons said in relation to agents and the fact that insurance companies bring in a group of people, give them a crash course and set them free on an unsuspecting public. I would view the development in that area a little differently. Insurance companies will slowly change in the future into quasi-banks where the broker becomes the underwriting agent. Those who are not geared to operate in this way and who depend on agents of different kinds will be forced into oblivion in the future. It is interesting to note that the agent is already being displaced by the direction and the action that the banks themselves are taking in the broader financial services market. By reducing production and administration costs the industry should be in a position to improve the quality of service it offers at cheaper rates. As the Minister said and all the other speakers mentioned, the costs of insurance are too high. Some classes of risks have difficulty in securing cover. Significant changes and improvements will have to be seen in these areas to take account of competition from other financial institutions in the battle for the saver's money. It becomes more and more important for the market to regulate itself.

In relation to risks and premiums, the premiums charged will be dictated by the occurrence of claims in the class of insurance in question. If losses are high and frequent, premiums will be high. This is especially the case in areas of immense importance to the general public, notably motor insurance and fire insurance. The premiums sought by insurers for motor insurance are nothing short of scandalous. I welcome the Government's intention to introduce a Bill to abolish juries in personal injury cases. The insurance industry has long claimed that the operation of the jury system has been largely responsible for the very high premiums. However, I will not hold my breath awaiting a fall in premiums.

I had occasion recently to hear to a large insurer speaking and he seemed to be playing a very different tune when he felt that the abolition of the jury system was imminent. Other factors seem to be assuming a far greater importance in relation to premiums being charged. It is important that we keep that point in mind. Insurers have been playing a particular card continually over a period of time. They find now that that card is to be taken away from them and they look for something else to justify the huge cost of premiums.

I wholeheartedly endorse the recommendations in the report of the interdepartmental committee as outlined in the Minister's speech. A number of people have mentioned the problem of young people trying to get insurance. In many cases they are not even quoted and where they are quoted, the loading on the premiums is absolutely enormous. People will have to recognise that a young person's job could be dependent on his having a motor car. The premiums quoted in some cases are greater than the cost of the car. That is a ridiculous situation.

In fairness to the young people — and we have 50 per cent of our population under the age of 25 — it is essential at this time that they be given the opportunity to get some sort of realistic insurance on cars. A number of reasons are given as to why premiums are so high, not least the number of vehicles that are uninsured and the number of uninsured drivers operating. It is understandable why that number is so high. I am not saying for one moment that I agree with that but I am specifying why the case is so.

The Motor Insurance Bureau of Ireland was set up to alleviate hardship for the victims of uninsured motorists. In fairness, it is totally financed by the insurance industry. With regard to the cost of claims, it is an example of the huge problem we have in relation to motor insurance that the figure is somewhere in the region of £50 million per annum in relation to claims made through accidents from uninsured motorists. The bureau exists to administer a compensation fund to aid the victims of the wrongdoer for personal injury. Again I am open to correction, but I understand that somewhere between 150,000 and 200,000 motorists are uninsured out of a total of approximately 750,000. That is an average of about one in five. The corresponding figure in Great Britain is one in 12.

The chief reason for uninsured drivers is the high cost of motor insurance. There is a lesson there for both the insurance industry and the general public. The insurance industry must show a bit of realism in the type of premiums they offer. The general public must become more aware of the responsibility they have in relation to uninsured drivers. The only occasion when uninsured drivers are really highlighted is in the case of joyriders but there are vast numbers of people who are abusing the system. The onus is on the general public to become more civic minded in this respect and encourage and demand from people that they should get adequate insurance cover. It is a chicken and egg situation. Should the motor insurance industry take the lead in this direction and offer facilities that would be realistic particularly to young people or, on the other hand, should the initiative come from the other side? The motor insurance industry have an enormous role to play in this direction.

There is one other area to which I would like to make a brief reference. That is public liability and fire insurance. The difficulties experienced in the business sector and other areas has been adequately dealt with by other speakers but there is one area that has not been mentioned in the debate so far. That is public liability insurance for small rural halls and community centres throughout the country. Trying to get insurance cover is a tremendous burden on them. We must remember that they are all voluntary organisations. In many cases they became the focal point for small villages when schools closed down through amalgamation. Indeed they have replaced the national schools in many areas as the focal point of the community. They are a result of community spirit. They are the life blood of many small local communities. They find themselves in difficulty at the moment because of the enormous premiums quoted in order to get cover for the different types of events they organise. Much effort and expense and in the vast majority of cases Government grants have gone into the development of these community centres. If something is not done in the near future in relation to the huge premiums charged for public liability insurance on those places they will close down as has happened in some cases. That would be a great tragedy. I appeal to the Minister and to the insurance. If we look at to take a look at that particular section in relation to insurance. If we look at statistics the number of claims made by community centres are few and far between. If you go on the basis that the premium being charged is related to the risk that is being taken, it is totally out of balance. I am making a very strong plea on behalf of those community centres.

I welcome the Bill and give it my wholehearted support but I would hope that my comments would be taken into consideration particularly in relation to the under-25 drivers and also in relation to public liability insurance for small community centres.

Mr. Ferris

I will be brief also because other Members wish to speak before the Minister replies. I want to make a few points about the purpose of the Bill which is to add to the Minister's supervisory powers in relation to insurance companies, to provide powers to the Minister to regulate commission payments to insurance intermediaries and to introduce a system for the regulation in the public interest of insurance brokers and agents. The Labour Party are totally supportive of this Bill, not because some of our colleagues were members of a previous Cabinet who published the Bill, but because we are genuinely interested in the consumer and in the overall benefit to the public. In the long term we hope, and this point was touched on by Senator McKenna, that in regulating the insurance industry, premiums and in particular motor premiums can be reduced somewhat. We think it is desirable to regulate by ministerial regulation the requirements for brokers and indeed the qualifications that are required of them in a very important area. We deal with public liability, we deal with fire insurance, motor insurance mortgage insurance and life assurance and their benefit and otherwise to pension funds.

I will deal briefly with some of those headings because they are important. The Minister will be aware of our interest and concern in these areas that affect all our constituents and, indeed, touch on most of our family lives.

In the area of public liability, the area touched on by Senator McKenna, there is the difficulty that people are now becoming so conscious of their rights to compensation for all sorts of eventualities, that the problem created for voluntary bodies in particular to get adequate public liability is enormous. It is well nigh impossible for rural organisations to run any kind of function in parish halls or sports fields, such as agricultural shows, whether they are run under the auspices of Muintir na Tíre, Macra or anybody else. The premium being requested for public liability in these areas is putting it out of reach of small community organisations. Senator McKenna is right in highlighting that as an area which the Minister should address. A national organisation such as the GAA and other foundations have funds set aside for this purpose but we must have regard for the smaller people who have to take out insurance before they are permitted by law to perform useful functions in the area of local community activity. This also applies, but to a lesser extent, to small businesses and indeed to politicians who provide a valuable service in their constituencies. It has come to my notice that if somebody arrives at a house to discuss a problem and trips up on the doorstep, even though they arrived there of their own free will, it is possible that if anything happened to them they could possibly claim on the politician who made himself available to the public.

We must look at what people now consider to be their rights and demand that that makes on people who want to give a service such as a clinic advice service by politicians which will now be more in demand following the decimation of the Community Services Board which regulated community advice centres on a voluntary basis throughout the country.

The question of fire insurance is one that nobody seems to be able to come to grips with because of the average clause that is built in by most companies which makes it almost obligatory that each year the value of one's property has to be index-linked somehow. Otherwise if one is unfortunate enough to have a fire and is under-insured in the opinion of the insurance company, they will only pay the fraction that they consider one is insured for irrespective of the capital sum covered.

The cost of motor insurance is one of the reasons why so many uninsured young drivers are on our roads today. This was also touched on by Senator McKenna who gave statistics to prove it. Where the State makes insurance obligatory or compulsory for third party road users, then certainly the State would intervene much earlier in the efforts of young people to get reasonable insurance cover on a third party basis at least for the cars they drive or want to drive to get to work. If the State makes it obligatory then the State should look at their own requirements about providing cover if it is not provided to a reasonable extent by the private sector. My experience in making representations to the Minister in this area is that one must prove that five companies have refused to quote before the Minister will implement some of the powers he has to ensure that cover is given to young drivers.

It is possibly the number of claims from that sector that makes it almost uneconomic for some insurance companies to give cover at all. We must commend the insurance industry for having set up the motor insurance bureau which does to some extent cover the ordinary public from damages to their person by uninsured drivers. That was the first welcome step we have seen from the insurance industry. By levying one another they set up an overall fund which protects the common good and protects people who are injured by uninsured drivers.

In that regard I want to bring to the Minister's attention my concern that the Wexford truck driver who proved to be a hero in the Zeebrugge tragedy found himself not insured for the loss of his vehicle on board that ill-fated ferry. To say the least it was mean of the company to consider that it was his business to have marine insurance for the loss of his truck. This man saved many people's lives but he has lost his own livelihood as a result of having lost his truck in that tragedy. How many people who are road users and owners of vehicles know that a specific policy is required if they use ferries, B & I and all the other ferries into which we as a State, have some input. Clarification from the Minister's Department in this regard would be welcome because if disaster struck one of the ferries under our aegis and if people lost their lives that would be a tragedy and could not be compensated for but if they lost their property in this way they would not be covered. In this instance it is the loss of a man's livelihood. The Minister should use his good offices to intervene with the ferry company although they are in another jurisdiction. This man intervened to save people and lost his property and was then told that it was his business to have his truck insured.

The question of mortgage insurance is a bit of a laugh now because whereas changes were made recently which allowed mortgage holders to have the option of having their own insurance companies, the mortgage companies made the requirements so difficult that it would be inadvisable for people to change even at their own free will to another insurance company to insure their risks because of the regulations that have been laid down. I have read them and they are unusual.

Life insurance is another most difficult area to explain particularly to old age pensioners who are visited weekly by these agents for the 2s.6d. premium and the 3s. 4d., the 20p premium and the 24p premium. If one tries to work out tax-free allowances for old age pensioners, because they are in the tax net if they have other small pensions, and tries to improve their tax-free allowances by ensuring that all their expenditure including life insurance is taken into account by the tax man, one finds that these old age pensioners can have up to 20 and 25 policies, the total amount of which would not bury them. They have been paying premiums for 30 or 40 years. There should be some stop put on companies who just continually collect small premiums from people in the knowledge that if they die their next of kin would get £20, £25 and a prize bond after 20 years. There should be some limit because many of these policies have been paid over 20 and 30 times.

In that area the Minister should look at the question of life assurance. When I mention life assurance I must express my concern at the Taoiseach's recent announcement that he would be disposed towards considering the disposal of Irish Life. Why would any Taoiseach or any Government dispose of an insurance company which has been beneficial to the State and gives a useful service to the State? Then two days afterwards somebody put a value on it of £200 million. From all our expertise and all our knowledge of this company we believe it is valued at at least £600 million and I would not be for advocating its disposal at all. I was surprised to hear that proposal which had surfaced previously and had been reneged on because there was no popular support for it. For some reason we are prepared to hand away the State's investment in this area to the private sector to reap further private profits. That is a step backwards. I hope the Minister will bring my views at least to the Taoiseach's attention. We deserve more than the disposal by the State of what is a profitable enterprise. It should not be handed over for a song to the private sector.

The powers that will be conferred on the Minister by this legislation are welcomed. We hope he will implement them. The Minister spoke about changing some of the sections in the Bill. There is a fundamental difference between an agent and a broker and it is vitally important that we realise that brokers must have some degree of competence, that they be required to prove their competence and to have a bond. If a broker is taking onto himself the role of representing companies the least the public are entitled to by way of self-protection is that the broker is bonded in the event of a problem. We dealt with this in relation to the travel agency business. That was a welcome development. It protected the consumers in that area. Likewise this development is an important one. It is not unreasonable that somebody who acts as an insurance broker should be able to insure himself on this bond. If he is acting as a broker for four or five reputable companies he should have no difficulty in getting a bond to cover this amount even if he spreads it between four or five companies. The premium involved to protect the interests of the public would be very little but would be a welcome development. It is appropriate, too, that a broker would be obliged to disclose on his insurance documentation details of the companies he is acting for. I see nothing wrong with that concept. At least the public would have options and would know that the broker is registered and qualified to represent certain companies. That is the only way we can overcome the doubts people have about being insured properly.

I do not think an agent has the same responsibilities as a broker. An agent's job is to go and collect money which is then channelled through a brokerage back to the parent company. The Minister has approached this question in the right way in the various sections which seek to regulate how that process will evolve. All of us welcome that. Why should a broker not have qualifications? Auctioneers usually have very little by way of qualification. They are like politicians; they stand up on a platform and start talking.

An Cathaoirleach

It is not that easy.

Mr. Ferris

Auctioneers have been successful in getting elected as a result of being able to talk.

An Cathaoirleach

They are different types of elections. Senator Ferris to continue, without interruption.

Mr. Ferris

There is nobody interrupting me but the Chair. Anyway I welcome your interruptions, a Chathaoirligh. You understand what I mean about being well able to talk because you are an example of that qualification yourself. If auctioneers can get auctioneers' licences by being able to talk, insurance brokers should likewise be licensed and meet certain regulations and qualifications.

These are my overall comments on the Bill. It is important that the public, the consumers should be protected. If this Bill goes some of the way towards insuring their protection in the long term I hope it will be successful. I hope, too, that it will put some semblance of regulation into the industry which, as Senator Ryan has said, up to now has been self-regulatory. This is welcome in a way but it is totally dependent on their goodwill. The State has a role to play in ensuring that when people project themselves as doing something or giving a service which is paid for at the end of the day by a consumer, that consumer is entitled to the full rights, protections and the rigours of the law. It is obvious from some of the experiences that have been quoted by Senators in regard to insurance that that is an industry which is booming. Advantage has been taken of people's obligations to have insurance by way of State regulation, statutory obligations and laws. It is important then that the State should intervene to ensure that there is a reasonableness about how premiums are complied. It is appropriate that the Minister should have regulations to intervene where exorbitant commissions are being charged, because this has a bearing on the overall cost of insurance. Likewise the legislation about juries should have an impact. Originally the industry claimed that the reason the premiums were so high was because juries were too liberal in cases in which insurance companies were paying. As Senator McKenna said, they are now backing off a bit. Any time there is a suggestion that premiums should be lowered because of the State's intervention the industry screams and gives another reason for having premiums so high, if not higher. We hope that the Bill will have the desired effect. It will have the support of the Labour Party in this House.

Mr. R. Kiely

My contribution on this very important Bill will be brief. Insurance is vital for people in this day and age. This Bill has been described as the most important in the insurance industry since 1936. For that reason we must tease the Bill out fully with a view to ensuring that it will see the industry through tough days for the next 50 years. The Bill deals with the commissions payable to agents and brokers and with additional powers the Minister will have with regard to the examination of insurance companies. This is very important work and it is necessary that this kind of activity be fully monitored at all times by the Minister for Industry and Commerce. Many people say that if we had been as vigilant some years ago as we are today the collapse of the PMPA might not have happened. Many people say also that we ought to have known about the ICI problem. I hope that this Bill will produce a better investigating climate which will not allow companies to go out of business in the future.

The public at large are more concerned with the real problem of insurance as they see it: the cost of insurance, the availability of cover, whether they are insured with a good insurance company or if they get any cover. These are the problems that are affecting the community. It is a well known fact that jobs are being lost because public liability insurance and employers' liability insurance can either be too expensive or cannot be obtained at any price. This will have to stop. I share Senator McKenna's and Senator Ferris's concern about the high premiums that voluntary bodies and voluntary organisations have to pay for public liability insurance. I am a member of the Gaelic Athletic Association who have a club in every parish in the country. The cost of public liability cover to this association is enormous. They are trying to build up a fund of their own to ensure that the insurance will not be as costly to clubs as has been the case up to now. The underwriters of that fund are a British firm. It was impossible for the association to get the public liability insurance in Ireland. Some clubs have to pay in the region of £1,000 to get public liability cover. This puts great hardship on clubs who are doing great work for our youth and especially for the communities in their respective areas.

All halls should be insured. When Ballyboy Hall in Offaly was burned some years ago the trustees of the hall were liable for whatever claims were made. If Muintir na Tíre and other voluntary bodies had not come to their rescue they would have had to sell their farms and businesses to pay the claims. Insurance is necessary and very important but the cost of public liability is causing concern. If awards were not so out of proportion it might help to reduce the premium for public liability insurance.

The cost of motor insurance, particularly for the young driver, is astronomical at present. I hope that as a result of the introduction of this Bill, together with the Courts Bill, these problems will change for the better. It is very unfair that a young driver who may never have had an accident should be asked to pay a premium which costs nearly as much as his car. If he needs a car for his work he may have to finance it through a finance company. His parents may not be in a position to buy a car for him because they may be in financial difficulty also. The insurance cover is so great that it makes it almost impossible for him to insure his vehicle. This is probably one of the causes of uninsured driving. Young drivers are victimised because of the action of some other drivers. Young drivers should be offered a premium they can afford to pay.

I know that small insurance brokers are concerned about the status of agents. The brokers feel the attention they receive victimises them. They are worried that agents are receiving preferential treatment. I hope the Minister will address that matter in the Bill. The insurance brokers in the cities and towns of Ireland have played a major role in getting insurance for people at very competitive prices and in a very professional way. I would not like to see them downgraded in any way as a result of this Bill. I often wonder how people qualify as agents. This was mentioned already. Insurance companies should ensure that they appoint agents who have the confidence of the people. I am pleased to see that the Minister is also concerned about this. In his speech on Second Stage he stated:

The position of insurance agents is catered for in this Bill. Broadly speaking, the onus will be on the 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 intermediaries. The sort of persons involved are those who have shown that their financial and commercial dealings leave a lot to be desired.

Overall I welcome the Bill. The provisions of the Bill have been well received. A broker should have a professional indemnity bond so that the policyholder would have better protection. There have been too many problems in the past as a result of insurance brokers and agents going out of business. This has resulted in huge losses for the policyholder and the consumer. If this Bill corrects these matters it will be worthwhile. I support the broad principles of the Bill and hope that on Committee Stage the very complex problems will be thrashed out in the greatest possible detail.

Mr. Norris

It is my intention to be very brief. I welcome the overall thrust of the Minister's legislation. I accept that in a market economy it is really only possible to regulate these things in a fairly subtle and sophisticated way, that it is not the function of the Minister to direct insurance companies in a very blunt way and that they must take up certain classes of insurance and so on because the use of this blunt instrument can create a situation where paradoxically it becomes more difficult to insure.

I am still capable of being shocked, however, by the statistics about uninsured drivers. I believe that the Minister in his valiant attempt to regulate the insurance industry requires the assistance of other organs of the regulation of our life and I speak particularly of the judicial system. It astonishes me to see from time to time that uninsured drivers can be let off with a slap on the wrist, the benefit of the Probation Act or a very small fine. If out of a population of 700,000 drivers 100,000 are not insured, this is because they are not sufficiently encouraged by the system to be insured. Somebody floating around in a car is capable of inflicting serious injuries or death on a member of the public and if the driver is uninsured those injuries, with or without the operation of the jury system, will cost either the unfortunate victim or the State very large sums of money. When somebody is discovered by the Garda to be driving an uninsured vehicle it seems astonishing that they are not subjected to very stringent fines.

I would like to address myself principally to the question of loadings in insurance. While recognising that the Minister cannot be too blunt in directing insurance companies in this area, I hope he will take a very keen interest in it. It seems to me that there is some degree of unfairness that requires investigation. I am thinking particularly of the sort of loadings that insurance companies habitually engage in with regard to specific areas of Dublin: for example, Finglas in Dublin 11. There was a lady on the wireless earlier in the week who apparently found it either impossible or extremely costly to get insurance for her car because she lived in a particular area of Dublin. When she and subsequently the investigators of RTE attempted to find out the statistics upon which this risk was calculated the Garda refused to supply them. This is unfair. This is a situation in which the insurance companies are not, to use an American expression, `user friendly'. One accepts that insurance is the mathematical calculation of risk and the appointing of appropriate loadings, but surely the consumer should be entitled to access to the information upon which this judgment is made? The woman living in Dublin 11, a working class district, should be entitled to know if there is a reasonable basis for the calculation of this risk. It does not seem to be a very great burden that this should be made available to her.

The second area I want to refer are loadings in terms of house insurance with regard to specific areas of Dublin. I speak with some feeling on this because I am very interested in the refurbishment of the inner city. The restoration of the inner city of Dublin, an ideal to which we all pay lip service, is penalised. I am aware of cases where insurance companies apparently operate a black list against the inner city of Dublin in terms of insurance. I would very much like to see an end to this. I would like the Minister to find out if insurance companies are operating a black list or if they are attempting to extract unrealistic premiums from people living in the inner city. I know of several recent instances where people were willing to purchase and refurbish important 18th century buildings in the inner city. In one case they were prevented from doing so and in another case were nearly prevented from doing this very worthy work because they could not get the insurance cover which was a necessary requirement in order to take out a mortgage.

I am glad that the Minister appears to be sensitive to the interests of the consumer, particularly in regulating insurance companies in matters of disclosure of information and also of the compulsion upon somebody seeking insurance on a building for mortgage purposes to have the services of a surveyor who makes his or her report to the company directly. This has caused considerable annoyance. Access is forbidden to the unfortunate consumer: in other words you pay for a service which you do not get. This is being addressed by the Minister and I welcome it. If it is not specifically addressed I hope that he will do so. It seems that the insurance companies are saying, in the words of Lewis Carroll: "I'll be judge, I'll be jury, said cunning old fury, I'll try the whole case and condemn you to death" and there is nothing the consumer can do about it.

I was most interested in what my colleagues in the Seanad have had to say about public liability insurance. They spoke as if it was simply a rural problem and I regret to say that it is not. I am involved in a number of voluntary organisations which find it exceedingly difficult to get realistic quotations for public liability insurance. I can understand this in the case of one organisation because they generate their funds through running a discotheque and in the aftermath of the Stardust tragedy, which we all remember, the requirements for insurance have inevitably, and I suppose correctly, become much greater. With regard to the city of Dublin and our architectural heritage the insurance companies have to bear in mind, as the planning authorities have to bear in mind, the fact that when you are dealing with old and in some cases ancient buildings, it is impossible to meet all the requirements, and still insurance must be given.

The final area of loading which causes me very considerable concern — and I would greatly welcome some response to my remarks on this subject from the Minister — is life insurance. I bring this up because I have this morning received a very detailed proposed submission to the Minister for Health on the implications of the Acquired Immune Deficiency Syndrome. This comes from a union representing senior management and professional levels of employment, the Union of Professional and Technical Civil Servants. They have put together a very careful and considered document. This material contains the very worrying suggestion — or information as I understand it — that certain insurance companies are appending a questionnaire on what they call lifestyles which is highly discriminatory and very dangerous in the way in which it is administered.

According to the information with which I have been provided this morning certain insurance companies are asking the question which must be filled out by the applicant for insurance: "Have you taken the HIV virus test"? If the answer to that is yes, whether or not that test proved positive, the putative assuree is either immediately disbarred from life insurance or has such a substantial loading placed on them that it is impossible for them to meet the payment on this.

This seems to be very dangerous. It is not only highly discriminatory but it is also dangerous in undermining the work of various bodies in attempting to contain the disease, because it will certainly inhibit people from taking the test. Why take a test if, even should it prove totally negative, you are still by virtue of having taken the test rendered ineligible for life insurance. I look to some reassurance from the Minister that he will take a very active interest in this most worrying aspect.

Minister of State at the Department of Industry and Commerce (Mr. S. Brennan)

I want to be a little unusual and respond to Senator Norris's last point and get it out of the way very quickly. As the Minister charged with responsibility in this area, I would be amazed if, because you said in an application that you had taken such a test, that in itself would render you ineligible. I would be annoyed and disappointed if any insurance company automatically took that view. I can tell the Senator and the House that that will be taken up with the insurance industry within a matter of days. On Committee Stage I will communicate with the House and with the Senator directly. I can appreciate the need for companies to seek information. However, I do not appreciate them taking a view — if what Senator Norris says is accurate — that automatically taking such a test would render one ineligible.

In the health area and in particular, in relation to the scourge of AIDS, we have been anxious that insurance companies would be sensitive. I have the responsibility to ensure that insurance companies remain solvent. Therefore, I cannot push them into taking risks which are clearly not commercially healthy. I have asked them, and will ask them, for as much sensitivity and as humane an approach as is possible within the bounds of their solvency requirement in this area. I am happy to have the opportunity to announce that to the House today.

I would like to thank all of the Senators for the very useful and pertinent comments they made on Second Stage. I have sat through most of the debate and found it extremely interesting. We all realise that this Bill is an important measure and is necessary to strengthen the Minister's powers in relation to the supervision of insurance companies and to enhance the position of the consumer. I am glad that it has received general support from all sides of the House. That is very often the best type of legislation. This together with submissions I have received from interested parties reflects widespread agreement with the broad trust of the Bill's provisions.

Because it is a very technical Bill it will come into its own on Committee Stage. There were many good suggestions from Senators and from interested bodies outside the House which we will be happy to take on board as we progress through Committee Stage. The Government have a number of amendments to table. I look forward very much at an early opportunity to going through the Bill line by line with Senators so that we can emerge from Seanad Éireann with a Bill that both the Government and the Seanad can be proud to send to the Dáil for its consideration.

Apart from the changes proposed to Part IV dealing with insurance intermediaries many of the amendments will be of a technical nature. The House should appreciate the need for sound financial insurance and a financial system generally and the powers under Part II of the Bill will underpin and enhance existing supervisory provisions. These powers will enable the Minister to anticipate emerging problems with insurers and allow for swift corrective action to be taken. That is an important reform.

I would like to respond to some points made by Senator O'Toole and Senator Harte regarding the supervision of insurance companies and the position of the PMPA and the ICI. In response to Senator O'Toole's comments regarding the need for a more interventionist or hands-on approach to be taken in the supervision of insurance companies in order to avoid the situation such as arose in the PMPA and in the ICI and in response to some of Senator Harte's related points I would like to briefly outline how the supervisory authority operates in practice.

The primary objectives of my Department in supervising insurance companies are the maintenance of the solvency of the companies and the protection of the policyholders. At present there are 68 authorised insurers writing either life or non-life business and in order to transact insurance business legally companies are required to be authorised by the Minister for Industry and Commerce. Applications for authorisation must contain comprehensive financial information and a full range of operations which is subjected to a thorough and exhaustive examination by the Department before we would attempt to give any applicant a licence or authorisation. In addition, an applicant undertaking has to satisfy the Department that it will employ in its Irish office persons duly qualified to manage the business. This is an important area and one which the Department examine very carefully in the consideration of any application which comes before us. Criteria for the assessment of the adequacy of applications in this regard are kept under review.

The supervisory process, therefore, begins before companies are permitted to commence writing insurance business and that is an important point. Once an undertaking is authorised, the Department maintain close contact in the early formative years in order to ensure that the newly authorised undertaking carries on the business as planned and respects any conditions applied to its authorisation. This is important as it is essential to unearth difficulties when they can still be rectified with the minimum amount of disruption. Action taken in a number of cases over the years to ensure the adequacy of initial capital, or to require an increase in capital as soon as it appears necessary, is not brought to the public's attention. The annual returns submitted by insurers are subjected to detailed scrutiny and analysis by the Department of Industry and Commerce.

While one might argue that end of year information is not sufficient to enable potential problems to be averted I would like to emphasise that my Department do not depend solely on the annual year end returns. Six monthly or quarterly information is requested where the Department are less than happy with a particular company. In addition, where necessary, independent consultants are sent in to investigate aspects of a company's operation such as claims provisions. We do this as a matter of routine by sending consultants into insurance companies on a regular basis to satisfy ourselves as to their position. These studies are carried out in strict confidence and in general with the full co-operation of the insurer, and that is important. For obvious reasons it is essential to the welfare of the company concerned and its policyholders that this confidentiality is maintained. However, this is possible only where the company under investigation is willing to co-operate with the Department. I am happy to say we have had no great difficulty in seeking and getting that co-operation.

A problem arises where a company is not prepared to co-operate and that should be looked at. Under the existing legislation the Minister must, in such circumstances, go through the court to justify his actions. This would lead to inevitable publicity which, in turn, would lead to the threat of loss of confidence in a company as described by the Senator. Consequently, the Minister could not act until he was certain the problem was of such a scale that it warranted taking action through the court.

As explained by previous Ministers, this was one of the difficulties with the PMPA. This Bill now before the Seanad will solve this problem by giving the Minister powers to act whether or not the company co-operates and to do so without the matter becoming public and, even if a court case ensures, the hearing can take place in camera. It is important in this whole area of financial confidence that the Minister has the power to intervene without necessarily causing public concern. If the Minister has to wait until he has such evidence that will enable him to do it in a very public way, by then that very action could in itself be very damaging to the company. It is important that the Minister has that power in this Bill. The Senator should be reassured to learn that internal examinations of companies are already a regular feature of the provision. Furthermore, the fact that this exercise rarely becomes public is testimony to the integrity and confidentiality with which they are carried out.

I will deal now with the Senator's specific queries in relation to the ownership and the future plans of the PMPA and ICI. In so far as the PMPA are concerned, while it is under administration it is not in State ownership. Its shareholders remain its legal owners. However, the shareholders' interests have been completely eroded by the past losses of the company. The extent of these losses is such that the administrator has stated publicly that in realistic terms there is no prospect of the shareholders recovering any of their investment. As in the case of ICI, the administrator has a statutory duty to restore the PMPA to a sound commercial and financial position. The PMPA's latest published accounts show that the company is now trading profitably. Trading profits before exceptional losses amounted to £3.16 million in 1986 compared with trading losses of £6.3 million in 1985 and £13.4 million in 1984. However, the PMPA still has a deficit of some £200 million to deal with when the deficit is eliminated and the company's current trading activities are no longer required to contribute to the resolution of the problem. The company could revert to the control of its legal owners provided the amounts drawn down by the company from the insurance compensation fund have been repaid.

In so far as ICI is concerned it is, as the Senator remarked, State owned. The reasons for this State take over of ICI were dealt with in detail at the same time and I do not propose to cover that ground again today. ICI's latest published accounts for 1986 show a profit of over £10 million on the continuing business of the company and a net deficit of £120 million on its discontinued business. Draft accounts for the first half of 1987 show that the company is continuing to trade successfully. These satisfactory trading results on ICI's continuing business give some grounds for optimism that a track record of profitability can now be established.

The administrator is confident that such a track record coupled with ICI's key position in the Irish market should make the company's continuing business an attractive investment proposition. The company's position continues to be monitored closely to ensure progress towards recovery and towards the company's ultimate sale.

Senator Hogan talked about section 14 and considered that the powers being taken under this section are too wide-ranging and that they amount to interference on a day to day basis in the running of the company and interference with the commercial interests of the company. The insurance industry has already made representations to me on the same point. I wish to assure Senator Hogan that it is not the intention to take powers leading to unnecessary interference in the normal commercial activities of a company. I would like to put that on the record as strongly as possible.

My primary concern is the financial security of insurers. However, I also feel bound to ensure as far as possible a fair deal for the policyholders. As mentioned in the Second Stage speech I have a number of amendments in mind which I will introduce on Committee Stage. In the light of these I am confident that I will be able to meet the concern of Senator Hogan and other Senators and the industry by modifying section 14 to make it clear that it applies to the continuing financial obllgations of companies. That should meet Senator Hogan's requirements.

In response to some comments by Senator O'Toole regarding a financial services centre and the need for an independent supervisory authority of all financial institutions, the Senator has correctly stated that the lines of distinction between the various financial institutions today appear to be becoming more and more blurred. He argued that, because of this, there should be a single supervisory authority covering all financial institutions. The Senator should be aware that the question of a co-ordinated approach to the supervision of all financial institutions has been under examination over the past year both at national and EC level and the work is much more advanced than commentators give us credit for.

As regards the international financial services centre, for my part as Minister with responsibility for insurance supervision, I can also assure the Senator that the insurance companies established in the financial centre will be subject to the same rigorous monitoring as their counterparts outside the centre. I understand Senator O'Toole's feeling these days as the plethora of new financial institutions and the amazing amount of new financial instruments coming from the financial institutions are quite mind boggling. There is clearly a requirement to have some overall view of where the financial services industry is actually going. I am confident that the development of the dockland project will give us the necessary experience and we will be able to apply it there in a real hands-on fashion, so to speak.

Senator Ryan was wondering also whether insurance companies were making exorbitant profits by over charging policyholders. Insurers are running businesses and must make a minimum return on capital invested by shareholders. The overall level of retained profits earned by non-life insurance companies with their head offices in Ireland reduced in the period 1981-84 from £6 million to nil. That is over that short period. While 1985 showed a welcome improvement, the overall level of retained earnings is still very low. It must be stressed that out of these retained profits companies must at least partly fund their increased solvency obligation and also the future growth and development of their businesses. While all companies can and do have recourse to shareholders for extra capital, this is only tenable in the long term if companies are in a position to reward shareholders adequately for their additional investment in the company.

I share the Senator's requirement and concern about the cost of insurance. I will return to that before I conclude. I should say at this stage that many Senators have referred to issues such as the cost and availability of insurance cover in certain classes. They referred also to the level of awards, to reform of the legal system and to measures to improve safety at work and on the roads. The common thread running through all these points made by the Senators is that insurance costs are simply too high and that lower insurance costs are crucial to our economic recovery because escalating premiums have added to costs in the past and undermined both our domestic and our export competitiveness.

The Government are extremely conscious of the burden caused by high insurance costs and of the difficulty of even obtaining insurance at any price in some cases. These issues have been raised in the House and I can assure Senators that significant measures to tackle these problems are already taking place. The reduction of high insurance costs in an integral part of the Government's Programme for National Recovery published last week. The Government have been moving and will move quickly to facilitate a reduction in costs in a number of ways.

Since taking the insurance brief and since the Government came to office we have been moving to reduce insurance costs. We are going ahead with the juries Bill which should contribute greatly to a reduction in insurance costs. If I may digress briefly to say something to the insurance industry in as clear a fashion as possible because a number of Senators took up this point, it is that the insurance industry told the Government and the public that to abolish the jury system and leave it to the judges to decide on awards, would have a major effect on reducing insurance costs. I am concerned at some commentators, admittedly on the fringe of the insurance industry, who are now beginning to make some noises that this may not necessarily happen. I would like to say on behalf of the Government that we expect the insurance industry to deliver on its commitment for lower insurance costs as a result of the juries Bill. It was in good faith that the Government went ahead with this Bill, largely on the assurance of the insurance industry that it would have a major effect. I know I can rely on the good faith of the insurance industry to deliver on that commitment and to deliver on it urgently. I will not tolerate any foot-dragging in that area.

The Government will move quickly to facilitate a reduction in costs by processing this legislation and also by introducing legislation to give effect to the main recommendations of the Barrington Commission of Inquiry on Safety, Health and Welfare at Work and by promoting greater involvement by insurance companies in the areas of road and workplace safety. The scope for promoting the publication of a book of quantum of damages, for example, for introducing a pretrial procedures system and reducing the level of legal representations in the superior courts to help reduce legal costs are also being examined. The insurance industry representatives have given assurances that reductions in insurance premiums will follow the introduction of the improved framework. That refers again to my earlier remarks.

While there has been no formal decision taken yet in regard to the number of lawyers involved in a particular case, I have during the summer called in the Bar Council of Ireland and formally asked them to consider reducing the number of lawyers involved in insurance cases in order to bring about a reduction in insurance costs. Some figures have indicated that approximately 20 per cent of an average claim could be the result of, not just legal fees, but all fees. That situation is untenable and we do not intend to permit it to continue for very long. Pending any formal decisions I called in the Bar on a voluntary basis and asked them if they could justify to me and to the public why eight lawyers are required on an insurance case — a solicitor on either side, two senior and a junior counsel. I put that question to the president of the Bar Council and he has undertaken to consider my request that they do something voluntarily about it. I am aware that in other countries Bar Councils have voluntarily undertaken to rid themselves of a situation which is no longer tenable. Again, I would ask the Bar Council for a response to my request as soon as possible. I am not making any threats or waving any big sticks at this stage. I have asked them to consider making a voluntary gesture considering the economic difficulties we have and I see no reason why the Bar Council should not respond to me on that matter as a matter of urgency. I have written again to them in the past four weeks and I am awaiting a response. I would like to call for that response again today.

I am confident that there will be rapid progress in all of these areas so that we can reduce the burden of high insurance costs in industry and on the ordinary consumer. I have been doing everything in my power to maintain the momentum already established to effect desirable changes.

Senator Hussey and Senator McKenna referred to the difficulties faced by motorists, particularly young drivers. I will read for both Senators the content of a parliamentary question which I answered yesterday in this regard for Deputy Jimmy Deenihan.

I am aware of the burden which high insurance costs impose on all sections of the motoring public and I intend to do everything practicable to alleviate this burden where possible. I am particularly anxious to improve the position of young drivers. However, the cost of insurance is directly related to the level of claims occurring.

The motor insurance industry in Ireland has had significant underwriting losses in recent years. In the absence of a change in the underlying claims experience lower insurance rates for young drivers would mean higher rates for the other categories of driver. More mature drivers have been statistically proven to be safer drivers than their younger counterparts whose rates reflect the higher risk.

As the insurance supervisory authority, my primary responsibility is to ensure that companies are maintaining their solvency margins and reserve requirements. I must, therefore, respect the right of insurers to charge economic premiums in the light of their underwriting experience. The initial loadings imposed on first-time insurers and more specifically young drivers, can be offset over time by earning a no-claim bonus. However, many young drivers have several years of claims free driving as drivers on their parents policy when they first take out insurance in their own name. Many of them get no credit for this.

I announced in the Dáil yesterday and I am pleased to announce here today that:

I have had discussions with motor insurers and they have undertaken, when the Courts Bill is enacted, to give a 10 per cent to 20 per cent no claim bonus to young drivers taking out their first policies. If they have been named drivers on their parents' policies for two years, have a full licence and have been accident free.

That is substantial improvement and I am glad to inform the House formally of it today.

I will be pressing for further improvements. Benefits should also come from tackling legal costs, the uninsured driving situation which I am talking to the Minister for Justice about and road safety, which are being considered in the context of the current joint Government-insurance industry discussions on how to reduce the cost of insurance. Independently of this, one of the major motor insurance companies in this city has taken the initiative and introduced a special young drivers scheme which allows a young driver to earn a no claims bonus while at the same time his premium is capped at a figure of £850 if he is located in the Dublin area or £700 if he is located outside the Dublin area. Yesterday I urged and would again today urge other insurance companies to follow the same lead. They are significant developments and ones which are designed to break the spiral of rising insurance costs.

Let me remind the House that, in a few short months, the Government have taken pretty decisive action on insurance costs: (1) by announcing the Juries Bill and by pressing ahead with it; (2) by entering into a partnership with the insurance industry; (3) by making this arrangement with the insurance companies; and (4) by calling in the Bar Council. There are a number of other reforms which are in the pipeline but they are all designed and all add up to the same thing: to force down the cost of insurance because our industries cannot afford the escalating costs and our motor drivers cannot afford the cost either.

For uninsured driving a figure of 20 per cent to 25 per cent is frequently quoted and was quoted here yesterday as being the true level of uninsured driving in the country. There is no conclusive evidence on this. The Department of the Environment do not accept this particular estimate. A roadside survey of parked cars was carried out by the Garda in April and the found that over 90 per cent of these cars had insurance discs displayed. This is not conclusive evidence that the particular insurance was in order but it does provide prima facie evidence of insurance of the vehicles which were surveyed. A comprehensive countrywide survey of the vehicle was also carried out early this year and the results of this should be available later in the year.

I am aware, however, that a figure has been calculated which concerns me greatly. This figure suggests that, if we could put uninsured drivers off the road, that in itself could reduce our average premium by as much as £70. That is a rough calculation but one which I intend to check into further. If that is possible, I can assure the House that I will be having urgent discussions with the Minister for Justice with a view to taking very strong action on the question of uninsured driving. I have also said publicly on many occasions that I have been considering suggesting to the Minister for Justice the impounding of vehicles in some cases where the legislation is not effective. That is totally a matter for the Minister for Justice but it is a suggestion which I have put to him and I will put to him again after I double check those figures.

Senator Ryan and Senator Norris raised the underwriting practices of motor insurers in relation to loadings. The motor insurance advisory board is currently examining this whole area and has requested very detailed statistics of each motor insurer carrying on business here. The motor insurance advisory board will be reporting to me in early 1988 following its analysis of the data supplied to it. Senators can take it that only those loadings which are justified by actual claims experience will we permit to continue.

Senator Reynolds stated that the growth in management expenses in insurance companies has averaged over 20 per cent per annum in recent years and that management expenses of insurers in the UK are less than two thirds of those in Ireland. I am not aware how these figures have been calculated and whether or not they relate to specific policies or particular sectors of the market, but I would like to point out that one has to be very careful when making comparisons of this nature. However, without going into too much detail and too many statistics I would like to comment very briefly on what the actual returns from the companies to my Department reveal.

Taking all insurers operating in Ireland, management expenses have fallen as a percentage of gross premium in 1984, 1985 and 1986 when the percentage was 13.3. When one looks at a breakdown of these figures as between head offices and branches, there is very little difference between them with a head office figure of 13.1 per cent in 1986 and a branch office figure at 14 per cent. A straight comparison between the UK and Irish management expenses is hardly valid. With the larger scale of operations and the lower salary rates in the UK generally a comparison would not be very valid. That is not to say I am satisfied there is no scope for further reductions in management expenses here. I said quite the opposite on a number of occasions since I assumed responsibility for this area. I will continue to look for improvements in the efficiency of insurers operating in the marketplace. I do not propose to comment in any way on the privatisation of Irish Life or suggest a privatisation. That is with the Minister for Finance and it is best left there on this occasion.

Senator Hussey asked when the levy of 3 per cent on insurance premiums would end, I have to remind Senator Hussey first of all — I know it is only a technicality, but just to get the record clear — that the insurance compensation fund is actually 2 per cent; the additional 1 per cent is a fiscal levy which is charged by the Minister for Finance. I know that makes no difference to the person who pays it, but that is for the record of the House which is important. With regard to the 2 per cent levy, the benefits of which, as Senators will be aware, are used for the administration of the PMPA, the position is that the latest forecast by the administrator of the company suggests that by mid-1990 the company is expected to have cleared its deficit, after which there will be no requirements on the fund. I would hope we could do even better than that but that is the current forecast from the administrator.

Senator Fennell expressed concern about section 28 of the Bill which seeks to limit the protection afforded by the insurance compensation fund. As the Minister made clear in his speech when introducing the Second Stage, the decision to reduce the level of protection afforded by the insurance compensation fund was taken after very careful consideration. Under existing legislation the liability of the fund is potentially unlimited and policyholders should not be expected to contribute any more than the present maximum level of 2 per cent to provide against insolvencies of insurance companies. I should emphasise that it is to be hoped that there will be no further demands on the fund. The fund will continue to be available to the administrator of the PMPA and the ICI.

Senator Fennell referred to the changes in the Bill relating to industrial insurance business. She expressed the view that industrial branch customers should be informed of the benefits of taking out an ordinary branch policy instead. Industrial assurance business is differentiated from ordinary branch business of by the nature of its collection, the frequency of its collection and the much lower level of the industrial branch premiums and sums assured. Expense levels associated with IB business are significantly higher than for OB business. The changes proposed in the Bill are designed to reduce these very high collection expense levels so as to improve the benefits to the IB policyholders. A straight comparison between the benefits of OB and IB business would not, therefore, I think, be very valid. I would like to point out that those persons taking out IB insurance referred to by some in this debate as penny policies — by Senator Fallon in particular — because of their low costs might not be able to afford the premiums on a typical ordinary branch policy.

On the question of commission, Senators have agreed that Part III of the Bill is a most welcome and necessary step. We are all too aware of the commission war which erupted earlier this year. I want to say to the House that some life offices were paying overgenerous commissions and offering — I think the best way to describe it is — other inducements to intermediaries in order to grab market share. This added to policyholder's costs and, if it had continued for any length of time, would have seriously threatened both the consumers' interest and the independent status of the broker market. Following an immediate intervention by myself, the industry got its act together in the form of a new commissions agreement, subscribed to by all life offices from 1 August last. It is my strong preference that the industry should continue to regulate itself in a responsible fashion but I am convinced that it is necessary at the same time to have at my disposals substantial legislative powers, should these unsavory unethical practices recur.

I want to compliment the industry after our initial scrap over those fun-in-the-sun ideas and so on that after that they got their act together. I compliment them on doing so in such a professional way. I would like the message to go out loud and clear to the life offices that, if an attempt is made to undermine self-regulation of commissions by the life market, the inevitable result will be a plague on all your houses in the form of statutory control of commissions by Part III of the Bill. I do not expect that to happen but it is important to put it on the record here today.

There are a number of other matters which I should cover but perhaps it would be wise as time is going on, if I defer some of those and deal with them on Committee Stage. There are a few matters of a technical nature which we can take up when we get to Committee Stage.

I thank Senators for their contribution to the debate and I want to say in particular that the Government have embarked on a programme designed to get down insurance costs. We are anxious to get down motor insurance costs and public and employer liabilities, in particular those three areas. We have already taken three or four actions which I have told Senators about and there will be many more in the months ahead designed to give us a more competitive industry because insurance costs are now a major cost to Irish industry. I look forward to an informed and detailed debate on Committee Stage. I commend the Second Stage of the Bill to the House.

Question put and agreed to.

Committee Stage ordered for Wednesday, 4 November 1987.

Sitting suspended at 1.30 p.m. and resumed at 2 p.m.

Seanad Éireann debate - Thursday, 15 Oct 1987

Insurance Bill, 1987: Second Stage (Resumed).

Seanad Éireann debate -
Thursday, 15 Oct 1987