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Seanad Éireann debate -
Wednesday, 23 Mar 1988

Vol. 119 No. 2

Insurance Bill, 1987: Committee Stage.

Question proposed: "That section 1 stand part of the Bill."

Section 1 simply refers to the fact that the Act may be cited as the Insurance Act and that it is to be taken together with the earlier Insurance Acts and construed as one code and that it will come into operation on the day appointed by the Minister. It really ties into the long title of the Bill that it is an Act to amend and extend the Insurance Acts 1909 to 1985.

I am very concerned at the fact that, although there are a considerable number of Government amendments to the Bill — which shows that there has been serious consideration presumably of representations made and of issues that have arisen and a willingness to come forward with amendments — we still have what I consider to be a very unsatisfactory situation in the apporoach to our insurance law. It is undesirable that our insurance law should be covered partly by Acts of the Oireachtas, including this Bill which is proposed to be part of that code, and partly by ministerial regulations under the European Communities Act, 1972. The thrust of those European Communities regulations is in many ways more far-reaching for our insurance law than the Acts of the Oireachtas.

We have a sort of two-speed approach and it is something about which the Joint Committee on the Secondary Legislation of the European Communities were very critical. Indeed, when the joint committee considered the two regulations under the European Communities Act which are referred to in the next section, that is, the regulations of 1976 and the regulations of 1984, they recommended that when there was an Insurance Bill before the Oireachtas the opportunity should be taken to incorporate those statutory instruments into an Act of the Oireachtas. The reason I have risen at the commencement of the debate on this Bill to raise the matter and even at this somewhat late stage to ask the Minister to consider bringing in further amendments to incorporate those regulations is that in a further recent report of the Joint Committee on the Secondary Legislation of the European Communities the same issue arose and the joint committee referred expressly to this Bill.

I would like to draw the attention of the Minister to that report. It is Report No. 3 on Council Directives relating to credit, suretyship and legal expenses insurance. It was adopted by the joint committee recently on foot of a report from a subcommittee which I chair. Therefore, I have to confess that I had a hand in the drafting of the report. Nonetheless the views are those of the full joint committee when the report was adopted.

I will refer the Minister to paragraph 5 of that report which makes specific reference to this Bill and the view expressed is an important one which I hope the Minister will take on board during this Committee Stage. The joint committee stated as follows:

The Department of Industry and Commerce has indicated that it is the intention to implement both Directives by a statutory instrument made under the European Communities Act, 1972. While the Joint Committee accepts that this course of action is open to the Minister it does not consider it satisfactory that the main statutory provisions regulating the conduct of the insurance business should be found in subordinate legislation which has never been considered by the Houses of the Oireachtas. This position has come about in particular by the implementation of EEC Directives by the European Communities (Non-Life Insurance) Regulations, 1976 and the European Communities (Life Assurance) Regulations, 1984. A previous Joint Committee recommended that these Regulations be replaced by an Act of the Oireachtas when opportunity offered but this opportunity has not been availed of in the Insurance Bill, 1987 currently before the Seanad. The Joint Committee is informed that at one time it was hoped that this Bill would be a consolidating measure but that the resources available within the Department were inadequate for the task.

That was a view expressed to the joint committee but we are now considering the Insurance Bill, 1987, on Committee Stage and important Government amendments are tabled. In my view, and I think this is the view of the joint committee, the most important Government proposal would be to consolidate our insurance law in this Bill. I will refer to other matters that could also be dealt with. It is important to consolidate the law because we have at the moment two different ways in which we are regulating our insurance law, one by Acts of the Oireachtas and the other by regulations under the European Communities Act where the Minister does have very wide powers to amend or vary an Act of the Oireachtas. This is particularly important because of the implications of European Community law, both the directives that are coming out and also, as the Minister will be well aware, the case law of the Court of Justice on freedom to provide services.

I will mention later on this Committee Stage some other problems I think are important that are not dealt with in this Bill as it stands at present but I would hope could be the subject of amendment also. Before coming to that I would like to hear the Minister comment on whether it would be possible to bring in further amendments to have one code in this Insurance Bill. If it is not possible to do it in this Bill — as I would hope it will be while it is still at a relatively early stage of its parliamentary scrutiny having been introduced in the Seanad — I hope the Minister can give an undertaking that it is intended, within a very short time and before any more European Communities ministerial regulations are adopted in the insurance field, that there will be a consolidating code in order that we will have an Act of the Oireachtas or Acts of the Oireachtas to be read together which govern the law in this very important area. I would welcome the Minister's response.

I have no difficulty whatsoever with the Senator's aspirations and objectives in this area. It is a question of resources obviously and a question of priorities which the Government and the Department have to set. Consolidation in any area is obviously desirable and it is particularly desirable in the insurance area with the plethora of EC directives and so on. I share the Senator's objective but (a) it is a question of resources and (b) it is a question of attempting to consolidate the legislation. If one were to take on board all the EC directives, for example, and the regulations in this legislation one would obviously need to do considerable consolidating work in advance. Quite frankly and quite bluntly that work has not been given the priority which perhaps it should.

I have had to set other priorities to do with the business of developing the insurance industry. I am using it as an economic tool and an economic instrument rather than allocating the resources in that area at present. I will certainly keep an eye on it and I hope we can get some solid consolidation work done as quickly as possible. Obviously the import of various EC directives is in this legislation and the appropriate ones are obviously taken on board fully in particular legislation. It is not on the front burner but it is on the long list of work which has to be undertaken.

Perhaps I could pursue the point a little further in view of the Minister's recognition of the importance of having insurance law governed by primary legislation by an Act of the Oireachtas and his reference to the difficulties of resources and whether it is a priority. That leads me to the other point I want to refer to at this preliminary stage on Committee Stage. During the examination by the joint committee of the European Community Directives an issue arose that seemed to be of fundamental importance. It arose precisely because there are the Acts of the Oireachtas, there are the European Communities regulations and there is an uncertainty in a fundamental area of law. It is a technical area and I do not want to take up much time on it but it is important to identify it and to refer again to the full treatment of it in this report.

The doubt which was expressed to the joint committee by the representative of the banks standing committee — in other words representing the banks — was whether guarantees which are given by Irish banks in relation to business which may be carried on are caught by the Insurance Acts. That is the net point. The problem arises by virtue of the provision of section 9 of the Insurance Act, 1936. As the Minister will be aware, section 9 of the Insurance Act, 1936, makes it unlawful for a person, except in the course of reinsurance, to effect or endeavour to effect a contract of insurance with an unlicensed insurer. The question is whether the business being carried out by banks is caught by that section. There have been some attempts by statute to amend that. What has happened is that there have been certain exemptions in the Insurance Act, 1978, but those exemptions have compounded the problem for banks. I want to refer to the remarks of the joint committee in paragraph 11 of the report:

By virtue of the definition of guarantee insurance business in the 1936 Act therefore it may be that some contracts of guarantee entered into in the course of business by undertakings such as banks which are not authorised insurers which might not be regarded by the Courts as contracts of insurance at all may be rendered illegal. For example a bank might be regarded as entitled to guarantee payment of a rental under a leasing of equipment agreement because empowered to do so by the 1978 Act but not the performance of other clauses in the lease.

Paragraph 12 states:

Judging by the Department's memorandum this situation has not been brought about by any positive policy decision but arises from a provision in the 1936 Act the effect of which is not clear. Nevertheless it has been thought necessary to deal with it not by amending the 1936 Act so as to exclude banking business from the provisions of the Act but by enacting legislation exempting certain specified contracts of guarantee from the provisions of the Insurance Acts. The Joint Committee is informed that in the United Kingdom such contracts entered into in the course of banking business are exempt from the requirements of legislation implementing EEC law and insurance. It can hardly have been the intention of Council Directive 73/239/EEC that the scope of suretyship should vary between Member States.

The joint committee went on to refer to the views of the banks and insurers as represented to the sub-committee which I chaired. Mr. Mandall, on behalf of the banks, said that this was not an occasional problem. He said that this was a very frequent problem encountered by the banks in relation to guarantees where major financial steps would be taken in partnership with international banks elsewhere where there would be an involvement of Irish banks and that the Irish banks have found themselves in difficulty as to whether they were prohibited by section 9 of the Insurance Act from being able to offer that type of guarantee. Mr. Mandall's views, as represented to the joint committee, are that it is constantly creating difficulties for Irish banks, not occasionally.

It is continually necessary to refer back to the 1978 Act to see if a service requested by a customer can be reconciled by the wording of the Act. There are doubts about the legality of business banks are expected to transact for the benefit of the State, for example, guarantees for deferred payment of customs duties; something which the banks fulfil on behalf of the Government, but there are doubts about the legality of it. Moreover, where in an international transaction an Irish firm is required to provide a guarantee by a foreign bank for which exchange control approval is forthcoming, it must incur the additional expense of involving an Irish bank in the transaction. It was Mr. Mandall's view, as urged upon the joint committee, that Irish banks should be placed in the same position as their British counterparts and that legislation along the British lines should be enacted in this country.

The interesting thing about the sub-committee discussion on this point was that it appeared that the representatives of the Department who were present had not been aware of the seriousness of the problem. For one reason or another they had not appreciated the seriousness of the problem from the point of view of the banks in seeking to undertake this kind of business.

There was also a very interesting response from the representative of the insurance companies who came to give evidence and make representations before the joint committee, Mr. Kemp, because he informed the subcommittee that the federation would not object to the banks' request being met provided the Irish insurers continue to be allowed to write the suretyship business as they were now doing.

There was no objection by the federation on behalf of insurance companies but there is a small problem which came up in the context of a technical directive. It is a mainstream problem which should be dealt with in this Insurance Act. It should be dealt with either by the repeal of section 9 of the 1936 Act, which was introduced at a time when it was intended to restrict Irish insurance to only two firms and to license very strictly who might carry it out because of the needs and the economic pressures of that time but it has no bearing on a country that is offering itself as a centre for financial services and is seeking to develop in that area.

It is important that we should take the opportunity in an insurance Bill to deal with genuine problems for banks engaging in this type of transaction. I hope the Minister will take the opportunity to accept that recommendation of the joint committee, and that is why I put it forward at this early stage in the debate, that he will have that report examined and come forward with an appropriate amendment to deal with the issue later on Committee Stage.

The first thing I should say here is that this is one of the Bills which deals with short title, citation and commencement. Section 24 of the Bill proposes, as the House may be aware to extend the banking facilities to the Industrial Credit Corporation and Fóir Teoranta in the area of bonds, suretyship and guarantees. It may or may not be the right place to discuss it. I will leave that to the House to decide. In fairness I should respond to the substance of what the Senator has said. I am not clear that it is pertinent to section 1. We are aware of this problem.

Until very recently we had no representation from the banks telling us they had any problem in this area. We have written to the banks standing committee and we got a response from them in which they now indicate that there may be some areas which could be examined. We are now seeking to do that. It is clear from the Senator's comments that it is a very complicated area. We are now aware of that. We will give some thought to whether any amendments are required. That is the most practical thing I can say at this stage. We are aware also of the views of Mr. Kemp and I have followed carefully the views of the joint committee on the matter. We are giving some thought to whether legislation is needed but I stress that, until recently, the banks did not make any representations to the Department on the matter. I have taken full account of the Senator's comments today.

This is a comment which is not directly relevant to section 1 but I examined the Bill and section 24 was as near as one could come to a section where this matter might be raised and it was not even strictly relevant to section 24. I take this opportunity to raise an issue which was certainly represented to the subcommittee as being a matter of frequent occurrence for the banking sector, that was causing additional expense and was frustrating the banks in seeking to offer the type of guarantee which national banks were offering as part of a package and which they felt strongly about.

I would tend to agree with the Minister. It did appear that this matter had not been raised or that representations had not been made directly and that to some extent it came out or was debated at the subcommittee session. It is appropriate, if it is possible, to deal with it in this Insurance Bill because it does seem to be a matter of urgency. I hope that the Government will bring in an amendment to tackle the matter. Am I to assume that the section dealing with the supervision of insurers would automatically come into law from day one and that other parts of the Bill, for example, that part dealing with the agents and brokers could come into force subsequently in a two-year period?

That is a very practical point. Different parts of the Bill can be brought into effect by ministerial order. The section the Senator is worried about is in Part IV where we are permitting a two-year period for adjustment. We have not finalised Part IV amendments yet but, as soon as that is done, we will take full account of that two-year gap. The answer to the Senator's question is yes, we can bring onstream different parts of the Bill on different dates.

Question put and agreed to.
SECTION 2.

We are discussing amendments Nos. 1, 2, 3 and 5 and they are related. Amendment No. 4 is an alternative to amendment No. 3. Amendments Nos. 1, 2, 3, 4 and 5 may be discussed together.

Government amendment No. 1:
In page 4, line 27 to delete "broker" and substitute "intermediary".

This change is necessitated because of the proposed extension in Part IV of the Bill of the provisions in relation to the holding of an insurance bond to agents as well as brokers in section 39. The effect of the change is to include those members of the public who deal with insurance agents within the definition of "clients" for the purpose of the Bill. It is in the nature of a technical amendment only. It has not any wider implications. For example, it will not affect the general law of agencies between principals and their clients.

The reason for amendment No. 2 is that the scope of the existing definition in the Bill as published is unintentionally too wide. As it stands, it would catch, for example, surveyors, engineers, assessors who also act in certain circumstances on behalf of an insurer in respect of a person proposing to effect a policy of insurance. The purpose of the provisions in Parts III and IV of the Bill is simply to introduce safeguards for the public in their dealings with insurance agents per se who arrange insurance contracts with insurance companies on behalf of the public and who may be entrusted increasingly with premium remittances.

It was never the intention to include, for example, surveyors, engineers and so on in this net as there is no exposure to members of the public involved. Indeed, members of the public do not deal with these people who are retained or employed by insurance companies on their own behalf. The amendment is, therefore, in the nature of a refinement of wording to reflect more precisely the intention of the provision itself.

Amendment No. 3 proposes a revised definition of "insurance broker" which is essentially an adapted version of an EC definition which is used in a Council Directive of 13 December 1976. We have adapted an EC definition to Irish conditions. The amendment has been put forward having regard to the views expressed by the insurance broking representative bodies and to the need to distinguish as far as possible from a definition point of view between insurance brokers, on the one hand, and other categories of insurance intermediaries and agents on the other.

The amendment put forward by us seeks to link the concept of freedom of choice for insurance brokers in regard to whom they do business with on behalf of their clients to the number of agencies required to be held by brokers under section 37 of this Bill. Thus, in the case of insurance brokers, the concept of freedom of choice of undertaking is related specifically to Part IV of the Bill rather than acting with complete freedom as it were, which I note is the terminology employed by Senators Mulroy and Fallon in their associated amendment.

The reason for linking freedom of choice to the number of agencies required to be held by brokers rather than to the notion of acting with complete freedom as to the choice of undertaking is as follows: first, I should say that insurance companies invariably only accept business from insurance brokers with whom they have concluded written agency agreements. Any broker not holding agency agreements with all companies operating in the Irish market would, under a definition incorporating "complete freedom" as to choice of undertaking, effectively be debarred from holding himself out as a broker as he would not be acting with complete freedom as to the choice of undertaking if he did not have the whole range.

In these circumstances, insurance brokers would have a stark choice either to seek to obtain agency agreements with all insurance companies operating in the Irish market or else relinquish a certain number of agencies and be forced to revert to insurance agent status. I am certain that this was not the Senators' intention. The Government amendment gets around this difficulty and is also legally consistent with the requirements laid down in Part IV of the Bill which we will deal with later.

I will also point out that the definition proposed by the Government does not include reference to re-insurance for the reason that Part IV of the Bill does not apply to contracts of re-insurance or to insurance intermediaries engaged solely in relation to the business of effecting contracts of insurance. The legal advice is that it would be essential to avoid any potential inconsistency or contradictory approach in the definition section and the body of the Bill.

In summary, therefore, the amendment in the Government's name proposing the revised definition of "insurance broker" will distinguish more clearly between insurance brokers, on the one hand, and insurance agents on the other hand for the purpose of this Bill. I trust that will be welcomed by the House.

As regards amendment No. 5, the original definitions of "insurance intermediary" and "intermediary" in the published Bill are too wide for the same reason as outlined in relation to "insurance agent". Furthermore, when one reads the definition of "commission payment" in section 2, (1) in conjunction with Part III of the Bill, it is clear that the powers to be taken would extend to persons other than genuine insurance intermediaries. This was never the intention. It is therefore proposed to define insurance "intermediary" as an insurance broker, an insurance agent or a person acting in any equivalent or corresponding capacity. We do not wish to go further than this. It should be pointed out at this stage that this amendment will not prevent insurers from paying remuneration to persons such as surveyors and engineers who carry out work from time to time for insurers in relation to insurance business. These payments will not be regarded as commission for the purpose of the Bill.

I would refer to the definition of "insurance agent" as any person who holds an appointment in writing from an insurer. It does not include an insurance broker or an employee of an insurer when the employee is acting for that insurer. A number of words are deleted from the section. Subsequently in the Bill we know that an agent is defined as an agent of the insurer. Does it now mean that insurance companies will be compelled to rewrite the contracts they may have with the agents? The deletion of the term "insurance broker" and the substitution of "intermediary" is appropriate and correct.

Amendment No. 4 which Senator Mulroy and I put forward might well be seen perhaps as a more international definition of the term "insurance broker". I understand it is used extensively as a definition in EC countries by European brokers and it is certainly appropriate here. We are a member of the EC and we should bring our administration and our insurance laws up to date. I can see the thinking behind the Minister's definition of "insurance broker". It is a diluted form of the definition put forward by me and Senator Mulroy. The important words in our amendment are "complete freedom". The word "complete" is omitted in the Minister's definition and I can see the reason.

Perhaps it is a problem peculiar to Irish insurance brokers that they may not have an agency with every insurance company and, therefore, you could arguably say that they are not working with total complete freedom. I would naturally prefer our amendment to be accepted but certainly the Minister's amendment is close to our thinking on the matter and is a slightly diluted version. If the Minister feels this is what is appropriate and if he has got a legal opinion, obviously we will not stand in the way. It is certainly a big improvement on the original definition and far more acceptable. The fact that we now refer specifically to freedom of choice is very important.

I would have thought that the reference to section 37 (1) of the Bill in the Minister's amendment might have been separate because I would regard that as standing on its own. The definition should also stand on its own but it does not raise any problems for me. However, I am sure Senator Mulroy would agree that whilst we would prefer for the reasons given to have our own amendment we can understand the thinking behind the Minister's amendment.

Amendment No. 5 defines an "insurance intermediary" or "intermediary" to mean an insurance agent, an insurance broker or a person acting in any equivalent or corresponding capacity. What exactly is meant by corresponding capacity? I would have thought that the amendment could have stopped at "insurance broker", rather than adding "a person acting in any equivalent or corresponding capacity". I would like some further clarification as to why it is necessary. Perhaps the Minister would advise me on that.

The first point Senator Fallon raised was in regard to the "insurance agent" definition and I assure the Senator it will not require insurers to rewrite their agency agreements. I wish to state that categorically.

If they wanted to, they could?

Of course. They will not be required to do so. If they wish to do so, that is a commercial matter. In regard to Senator Fallon and Senator Mulroy's amendment, I understand fully what the Senators are trying to achieve. With the technical expertise available in the Department and the draftsman's office we actually come closer to achieving what they want than they have found it possible to do. The key word here is the word "complete". The Government amendment uses the phrase "freedom of choice", while amendment No. 4 uses the phrase "complete freedom of choice". Our difficulty is that legislation is interpreted very strictly and, as pointed out earlier, complete freedom of choice could be seen by somebody interpreting legislation as meaning that a person must have the full range of companies. If that person were short one or two, a court might decide that there was not complete freedom of choice.

The word "complete" is a very strong word in legislation like this where we are dealing with a situation where one can actually measure "complete". The danger of putting it in is that we could undo the very objective which we are trying to achieve, i.e. a substantial measure of independence. I believe when we get to Part IV of the Bill Senators will see that we have gone to a considerable length to build an independent profession of insurance broker. That is the import of Part IV. While I admire the aspiration behind amendment No. 4, the wording which we have finally crafted is more accurate and more likely to stand the test of time. It is also an adapted version of the EC Council directive. Both amendments are very close indeed, but I would be worried about putting in the word "complete" because that could have the opposite effect.

The Senator asked me about corresponding capacity. What we are trying to do here is throw the net wide so that we will prevent people who use other titles from getting around the legislative requirements and stipulations, for example, somebody who calls himself an insurance consultant, or a financial consultant, or financial adviser. We want to make sure people in that area do not slip out of the legislative requirements laid on brokers because they do not call themselves brokers, as such. They may call themselves consultants, or advisers, or use some other buzz words which are appearing in the financial services industry.

In the insurance industry "consultant" is not defined. It is either going to be "insurance agent" or "insurance broker". That is what the definition is. Whilst I understand the Minister's thinking totally, there is no mention of "consultant" within the Bill.

There is not, because as soon as one puts it in the Bill some of the whizz-kids in the financial services industry will find another word.

Adviser?

It is only limited by imagination and creativity. If we look at the way the financial services industry has developed over the past decade or so, particularly in the past couple of years, the number of titles being used by people offering services is becoming quite vast. People are offering all sorts of quite sophisticated financial products to do with the whole range of financial services. I had no difficulty putting in "insurance consultant". As soon as you do that you run the risk of forgetting about some other one or a new one is invented such as adviser, or non-executive adviser, or non-executive consultant. It would go on and on and it could not be stopped. We thought the phrase "an equivalent or corresponding capacity" would be sufficient.

I refer to amendment No. 1 and welcome the fact that the Minister deleted the word "broker" and substituted "intermediary" because I wondered how the Minister would catch an agent in the same way as a broker would be caught in relation to the definition of "client". The Minister has certainly plugged that loophole in relation to the definition of "client".

In relation to amendment No. 2, I am often puzzled by the fact that there is a category of people getting themselves involved in the sale of insurance or insurance intermediary activity who have absolutely no qualification or experience whatsoever. They call themselves consultants and financial advisers and set up firms next door to their present place of practice, be it as accountants or solicitors. They call the new enterprise a financial services firm limited and seek to sell insurance and offer insurance policies to the public and establish a tied agency contract with a particular company. I do not think the definitions in section 2 would satisfy me that we are embracing all those people who are going around the country ad nauseam, knocking on doors at all hours of the day and night and seeking to garner insurance business under the heading of insurance consultant, adviser, or whatever.

Firms involved in the life assurance business have set up various sub-offices and they are advertising in local newspapers looking for people with little or no qualification, but who have a car, a nice demeanour and personality and seek to be employed selling life insurance policies on a cold canvass basis throughout the country. I would ask the Minister if he has incorporated these people in the definitions so as to ensure that they will have to comply with the necessary regulations, particularly under the Third Schedule of the Bill.

I want to clarify the reason for the amendments and the definitions of insurance agent, insurance broker and insurance intermediary which are now being proposed. I am not sure that I fully understand the reason for the amendments proposed. It is proposed by the amendments to define "insurance broker" in a manner which does not include the formula "or a person acting in an equivalent or corresponding capacity." That was in the original Bill but it will not be in the amendment. We are also slightly altering the definition of insurance agent and again it does not include that formula "or a person acting in an equivalent or corresponding capacity." When we come to the insertion of this new definition of "insurance intermediary", it is to be defined as "an insurance agent, an insurance broker or a person acting in any equivalent or corresponding capacity." Not being an expert in this area, I hasten to add, are we talking about four entities when we talk about an insurance intermediary? Are we talking about an insurance agent, or a person acting in an equivalent or corresponding capacity, or an insurance broker or a person acting in an equivalent or corresponding capacity? If an insurance intermediary means any of these four categories, why do we not define "broker" and "agent" as including a person acting in an equivalent or corresponding capacity?

First I will deal with Senator Hogan's points about people selling insurance products. The position is that no matter what you call yourself there is a very clear line drawn, based on the number of agencies held. If you hold more than five, no matter what you call yourself you are a broker. If you hold fewer than five, no matter what you call yourself you are an agent. The legislation defines the position in regard to brokers and agents.

Regarding the question of financial protection and so on, when we come to the matter of bonding arrangements, it will be seen that we have made considerable progress in that area. Section 48 of the Bill permits the Minister to lay down a code of conduct for all intermediaries. It would be our hope and intention to work on such a code of conduct and to produce it under the Bill. The code of conduct would deal with behaviour and the general manner in which the public are dealt with. It would deal with the minutiae of the conduct of intermediaries vis-à-vis the customer and the person publicly.

Senator Robinson's point is related in the sense that we are not talking about four different types of people here. Without getting bogged down in the wording, we are talking about agents and brokers. We are trying to develop on the one hand a professional body of insurance brokers and to bring forward legislation so that when the public approach an insurance intermediary they will know whether that person is a broker who acts for the customer and can offer the whole range of services to the customer across the board — so there is a protection element in that — or whether they are dealing with an agent who would have a smaller number of agencies and, basically, is a company's person.

That was a fundamental decision to be taken in the whole Bill. It was one of the reasons for the delay in the legislation. Part IV deals with all of that. The Government took a policy decision to divide the waters into the building down the road after a two-year period of a broking profession, purely from the point of view that the public are entitled to know whether they are dealing with an independent profession who can offer the whole range of services, or whether they are dealing with people who are primarily representing individual companies. There are basically only two. The reason it appears as if there are more is the tendency in recent years for people to call themselves other names like financial consultant or insurance consultant. I am satisfied that the legislation makes that clear but, if it does not, we will have a look at it.

Perhaps I did not make myself clear on the type of people I am speaking about. I am talking about tied agents to companies who are in the life business, or they might have a particular agency with a life company. They try to sell their life assurance to two, three, four or five people right around the country. They are people with no experience and very little training. It is a hard sell for the general, unsuspecting public. The person who hires those people might be classified as the insurance agent. What safeguards are we putting into this Bill that will stamp out the indiscriminate sale of life assurance products right around the country? Even though they are employed by an insurance agent they might have no experience or no agency themselves with an insurance company. They are one step removed from the legislation. Does the Minister know what I am talking about?

I do. Are you talking about tied agents? Section 43 deals substantially with tied agents and control in that area.

Just in case the Minister wants to put in any definitions I want to be clear on that.

The Senator is very kind.

I, too, share the frustration felt by Senator Hogan, because I have seen it over the years. Anyone can sell life assurance. It is unbelievable the kind of people I have seen selling life assurance to an unsuspecting public. They have no knowledge of the insurance industry. They have no knowledge of the kind of principles that the insurance industry adhere to. Any Tom, Dick or Harry can set up, as Senator Hogan said, and sell life assurance in particular but also general insurance, and that is wrong. The Minister will say, and Senator Hogan will agree, that this is what this Bill is all about. The Minister hopes to resolve the problems and end the kind of mushrooming of agents and intermediaries that have been there in the past. He hopes to stop people who have no knowledge of the industry selling insurance left, right and centre. They may be given a two hour crash course and told to go off and sell endowment insurance, unit links, or whatever. That is no longer on. That is what the Bill is about. I hope this matter will be resolved at the end of the day.

I support Senator Hogan regarding the tied agency. That is in section 43 of the Bill. We will discuss it when we come to it. That is where the real cowboys are operating within the business. The whole tied agency principle has to be examined in great detail. From what I have seen of it throughout the country — and I am sure Senator Hogan and other Senators will agree — it is very, very unsatisfactory at present. That is for another day. I can understand Senator Hogan's concern. I share that concern.

I want to come back one more time to the definitions, in the light of the Minister's response to what I said. The Minister has made it clear that it is intended to have two categories — the insurance broker and the insurance agent. That is why I am puzzled that the amended definitions exclude from the definition of insurance broker or insurance agent the person who is acting in an equivalent or corresponding capacity. When you come to the definition of an insurance intermediary — amendment No. 5 — it is proposed that "insurance intermediary" or "intermediary" means an insurance agent, an insurance broker or a person acting in any equivalent or corresponding capacity. One could read that it was an insurance agent, an insurance broker, or a person acting in an equivalent or corresponding capacity to the insurance broker, but is it also a person acting in a corresponding or equivalent capacity to an insurance agent? They are four types of people. If you exclude from the definition of "insurance broker" a person acting in an equivalent or corresponding capacity then you have got two different things. You have got an insurance broker and a person acting in an equivalent or corresponding capacity. They may both be insurance intermediaries, but they are not both insurance brokers. Similarly, if you have got an insurance agent and a person acting in an equivalent or corresponding capacity, you have got two different things. They may both be insurance intermediaries, but they are not both insurance agents.

My real question is whether it would be possible to simplify the matter by including in the definition of "insurance broker", as reconstituted here in amendment No. 3, the additional phrase "or person acting in an equivalent or corresponding capacity but within the original definition". Similarly, could it be included in the definition of insurance agent, and then the definition of insurance intermediary would be very simple? It would mean an insurance agent or insurance broker, full stop, because those definitions would import a person acting in an equivalent or corresponding capacity. It may be all semantics but it is very strange to use "insurance intermediary" to define categories that are not defined as primary categories.

This is one we could have a long discussion on, particularly if the parliamentary draftsman were here. In section 2 (1) it is proposed that we say: "insurance intermediary' or `intermediary' means an insurance agent, an insurance broker or a person acting in any equivalent or corresponding capacity". The advice we have from the draftsman's office is that does what we want to do, which is to ensure that it applies to both, and that if you are acting in an equivalent or corresponding capacity through an agent or a broker it locks you into one or both of those definitions. It is meant to apply to both. You could make an argument on an interpretational basis that it does not. It is clearly our intention that it will apply to both. The advice I have is that amendment No. 5 — insurance intermediary meaning an agent or a broker or a person acting in an equivalent capacity — makes it clear that it applies to both.

As I say, it is not an area I am familiar enough with on the ground to know if this is a significant difference. Looking at it legally, it appears to me that the way in which the amendments approach the definition of the concept of insurance broker, insurance agent and insurance intermediary means that an insurance intermediary covers four potential categories of persons. An insurance broker as defined, an insurance agent as defined, somebody who is recognised as not being an insurance broker but as somebody who is acting in an equivalent or corresponding capacity and somebody who is not an insurance agent but as somebody acting in a equivalent or corresponding capacity. There may be some reason for concern about that.

I will undertake to the House to consult the parliamentary draftsman again on the point. My intention is clear, however, that it is to apply to a broker and to an agent. I will consult him again on the point. If we can make it clearer, we certainly will.

Amendment agreed to.
Government amendment No. 2:
In page 5, subsection (1), lines 6 and 7, to delete the words from "to act" to "insurance" and substitute "enabling him to place insurance business with that insurer".
Amendment agreed to.
Government amendment No. 3:
In page 5, subsection (1), to delete lines 10 to 13 and substitute:
" `insurance broker' means a person who, acting with the freedom of choice described in section 37 (1) (b), brings together, with a view to the insurance of risks, persons seeking insurance and insurance undertakings, and carries out work preparatory to the conclusion of contracts of insurance, but does not include an insurance agent or an employee of an insurer when the employee is acting for that insurer;".
Amendment agreed to.

Amendment No. 4 is in the names of Senator Mulroy and Senator Fallon.

We did feel we had the complete amendment but we fell down on the word "complete". This was our downfall apparently and we accept the Minister's amendment.

Amendment No. 4 not moved.
Government amendment No. 5:
In page 5, to delete lines 14 to 18 and substitute:
"`insurance intermediary' or `intermediary' means an insurance agent, an insurance broker or a person acting in any equivalent or corresponding capacity;".
Amendment agreed to.

Amendment No. 7 is an alternative to Government amendment No. 6 and they may be discussed together.

Government amendment No. 6:
In page 5, to delete lines 44 to 46 and substitute "reward or benefit in kind, paid or payable by or on behalf of the holder or an authorisation to an insurance intermediary in connection with".

This is a fairly technical amendment designed to maintain consistency with the wording used in section 31 of the Bill which refers to "any benefit in kind." The phrase "benefit in kind" is also used in a life commission's agreement operated by the Irish Insurance Federation on a voluntary basis. The powers in Part III of the Bill are intended as reserve powers to be used only if the voluntary market self-regulation of commission levels does not continue to operate satisfactorily in the future, in which case it is considered desirable to refer to benefits in kind, which is a commonly used description in relation to non-monetary assistance provided from time to time by insurers to intermediaries.

The amendment will also cater for commissions paid indirectly by virtue of the new phrase, or on behalf of the holder. That is to maintain consistency with the provisions of section 45 of the Bill. The words "in respect of work carried out by the intermediary" are also being deleted by the amendment so as to ensure that indemnity commission, which is commission paid by an insurer in advance of any work being done by the intermediary, is also covered by the powers vested in the Minister to control commission levels, if necessary. This will clarify absolutely that the commission controls in Part III of the Bill will include all payments by insurers in advance of any work actually carried out by an intermediary; for example, contributions by an insurer to an intermediary's start-up costs. The intention here is to provide a definition which will ensure that all payments in whatever form will be reckonable as commission. I trust that, among other things, this amendment will meet Senator Hogan's intention, for example, in framing his own amendment to that aspect.

I am glad that the Minister has brought forward this amendment. I was extremely concerned that no reference was made in the definition of commission payment to the many auxiliary features of the insurance business which assisted people over the years in order to provide a certain level of customer satisfaction and insurance company satisfaction from the point of view of the agent or the broker. You had situations where you had what was known as "indemnity commission" of a certain amount of the annual commission paid up front to a particular insurance intermediary. This, of course, was a facility offered by various life assurance companies in particular who wanted their product promoted more heavily than the product of their competitors. Relationships were developed between insurance intermediaries and life offices in order to boost the sales of their particular product. It often took the form of holidays, loan facilities, office expenses or secretarial expenses.

There is one part which also forms part of the life offices agreement which I welcome — and the Minister called for it on a number of occasions. It is that the life offices themselves should introduce a self-regulatory code of discipline in order to streamline the entire operation of these particular incentives, to eliminate them and to have all life offices and commission payments and benefits in kind on an even keel. I am glad to say that the life offices heeded the Minister's appeal. They came together last August and drew up a very comprehensive package of agreed procedures. They were very certain about one aspect of what we would call "benefit in kind" to which I would draw your attention, namely, the technology aspect.

We are living in an age of great improvements in technology. Many insurance intermediaries and brokers will be introducing computerisation into their offices, whereby they will be able to link with various general insurance companies and life insurance companies in order to get on-the-spot quotations and up-to-date information in relation to the best available product for the customer and for their client. I would ask the Minister to clarify the position in relation to technology arrangements that would from time to time be entered into between insurance companies and insurance intermediaries. Does this come under the heading of "benefit in kind" under the amendment being proposed here this evening?

I, too, would like to query this amendment. Commission payment has a meaning given to it in subsection (3). It is defined. The words "benefit in kind" could have different meanings and I ask the Minister if he would consider that it, too, should be properly defined in the Bill. Benefit in kind is also referred to in section 31 (1) of the Bill.

I can assure Senator Hogan that any assistance of the nature you describe would be deemed benefit in kind. Any assistance over and above the ordinary commission which would be seen to be in place of, or additional to, the ordinary commission would be deemed to be benefit in kind. Senator Fallon also made the same point. We have not sought to define the phrase "benefit in kind" in the legislation. We are relying on the commonly used description and the commonly used interpretation of the phrase "benefit in kind". This is not an argument for saying one should define every word in the Bill. The phrase is well known and most people understand its meaning. It is not obviously a technical term. Benefit in kind, as is commonly used, will suffice.

I am certainly familiar with "benefit in kind" in the social welfare field, for example. It seems as though there is a narrowing here of what is constituted in "benefit in kind" because section 2 (3) (a) as it stands says a commission payment for the purpose of this Act is a payment, including a commission or other remuneration, reward or benefit in kind. It has to be benefit in kind that is of a payment nature. It seems to me, if I understood Senator Hogan's intervention, that he was talking about broader potential benefits than just matters which were the subject of actual payments. It does seems, on the wording as we now have it, that the benefit in kind must come in the form in some way of a payment to the person and, therefore, it might not be a technology advance, or whatever.

I am grateful to Senator Robinson for her intervention because she has certainly reminded me of another point. The fact that the word "payment" is only mentioned in the subsection we are dealing with causes me even more distress, in that it was referred to earlier on in the form of the inducements and the indemnity commissions, the holidays in the sun and the other inducements which have been introduced by various insurance companies and they may be excluded from the definition of "commission" payment or may be included in another section of the Bill. I want clarification on it at this stage.

The Senator wants clarification of the precise area covered by "benefit in kind"? Section 2 (3) (a) says that it is benefit in kind, and so on, in connection with the insurance business of the holder, so clearly if there are non-monetary inducements of any description, which are additional to the ordinary payment situation between the insurer and the intermediary and it is in connection with the insurance business of the holder, that would be deemed to be benefit in kind. The difficulty I have in trying to define "benefit in kind" is the difficulty in finding an exhaustive list of "benefits in kind".

The list is endless.

Yes. I do not know that it is defined. I am just inquiring as to whether it is defined in the Finance Act, or in the taxation legislation. I do not believe it is. I will certainly check that point. Perhaps there is a definition that we can use. I have no difficulty in defining it if there is a neat definition, but I do not want to get into a long list of "benefits in kind". That would be totally impossible.

I certainly look forward to the Minister's reply on Report Stage. If he feels an amendment is necessary on Report Stage perhaps he would initiate it himself. He will be aware of our concern in relation to the definition of commission payment and benefit in kind. If he needs to bring forward a definition of benefit in kind, a nice neat one might be helpful. If there is not one available, the list could be endless. Government amendment No. 6 is certainly satisfactory to me, broadly speaking, for what I want achieved in my own amendment of No. 7 and I will withdraw amendment No. 7 accordingly.

On the question of the scope of benefit in kind, I do not think you can take benefit in kind out of context. It has to be seen in the context of section 2 (3) (a). Section 2 (3) (a) defines commission payment as a "payment including..." and it goes on. If it were intended, as Senator Hogan hopes, to have a broader scope for benefit in kind, it would seem as though it would be appropriate to amend that by having it as a payment or provision including commission or other remuneration, reward or benefit in kind paid or payable or provided by the holder. Then you can have a broader identification of what amounts to benefit in kind. It is not just a payment of some kind. It can be some other goody of a technological or other nature. It does not matter what you are defining as commission payment, because payment can be defined broadly as included in the provision of something that is not a payment, as long as it is so defined. As it is defined at present, it would seem to me, looking at it narrowly and legalistically, that benefit in kind is very narrowly cast to being some kind of payment as such, but if the Minister is advised otherwise, then so be it.

Can I just say, it says it would now serve "reward" or "benefit in kind".

It is a payment——

Yes —"reward" or "benefit in kind". It is clear enough.

OK. It has to be paid.

That word "payment in kind"——

Benefit in kind is paid or payable, not provided.

We will look at it.

Amendment agreed to.
Amendment No. 7 not moved.
Question proposed: "That section 2, as amended, stand part of the Bill."

On section 2, if I could just refer to the definitions of insurer and the person who is authorised, the insurer is defined as meaning the holder of an authorisation under the regulations of 1976 or the regulations of 1984. These are the EC regulations under the European Communities Act of 1972. I think I am correct in saying that authorisation incorporates, in effect, section 9 of the 1936 Act. Is that not correct? Therefore, if a person is not authorised under section 9 of the 1936 Act he would not be authorised as an insurer. Is that correct?

That is correct. It is referred to in the reference to the Insurance Act 1980-1989. To some extent that covers some of it.

My next question — and this is really why I wanted clarification on that — is on the definitions and the authorisation. What is the position of a person who takes out insurance with a United Kingdom or a Northern Ireland company and does not ask the question, or is not aware, of whether that company is an authorised company? As I understand it, authorised under the European Communities Regulations, because they incorporate section 9 of the 1936 Act, means that the foreign insurance company, either UK or Northern Ireland in my example, would have to have a branch here, so if a person is offered insurance in the post from a UK company, or a Northern Ireland company and takes out insurance, and if that UK company are authorised under the British implementation of those directives, why cannot they do that? Surely if we are going to comply with European Community law they should be in a position to offer the services here without establishing a branch and be in a position to do business. The consumer should be in a position to enter into business with them.

It is mainly because the EC law on this matter is not harmonised. There is not a "freedom of service" directive agreed at Council of Ministers level or EC level yet. The question of somebody getting insurance in Northern Ireland is not supposed to occur. If it does occur, there may be a legal question as to the validity of the transaction or the policy. There is not a "freedom of services" directive so as such, we have not got that far. It would need that directive to be agreed at EC level for us to harmonise the insurance law generally.

If I could just pursue that a little further, is that in fact the position? As I understand it, there is a proposal for an insurance services directive. Certainly the Minister is correct in that but, pending a directive being implemented, is it not the case, under the case law of the Court of Justice, particularly the case the Commission brought against Germany, that freedom to provide services is a directly applicable provision of community law?

Therefore, even without a services directive, it may not be open to us to require, as a precondition of doing business in this part of Ireland, that an insurance company should have established a branch here. If that is so, it would be better if we tackled that issue in the definition of this Insurance Bill — we do not have Insurance Bills very often — and addressed the question of whether the provision for authorisation is compatible with the Community law on the freedom to provide services. I would have some doubt as to whether an authorisation, which will only be given if you establish an actual branch here, where companies are authorised in their own member state under the directive to offer the particular type of insurance, can be kept out or not be authorised entities to operate here.

The Court of Justice did recognise, in the particular case the Senator refers to, the sensitivities in the area. They also recognised and made it clear in their judgment that there was an unharmonised state in regard to the freedom of services area. It is for that very reason that the EC at Council of Ministers level and at Commission level have been trying to make some progress in that whole area. Until such time as we get that freedom of services directive I suppose there will continue to be a lot of grey areas and difficulties. The Court of Justice recognised, in their judgment, the particular sensitivities and the general difficult area the Senator describes.

I do not know what more I can say to the Senator other than that the services directive is being worked on and this country is active in developing it at EC level with other countries. In the meantime there is obviously a grey area and it will remain so until we agree to a services directive.

The type of authorisation under the European Communities Regulations, incorporating section 9 of the 1936 Act, is unique to Irish law. We do not have a similar provision, for example, in the United Kingdom where they have similar approaches to this general law. It goes back to an earlier period and an earlier time. What is of more concern at this stage is that the consumer would have access to choices in insurance policies, choices in approaches to insurance. The Court of Justice recognised, in the Commission against Germany case, that this was a mass market and that there might be a need, in the interim pending a services directive, for some concern on the part of member states. I do not have the judgment here so I cannot quote from it but, as I recall it, the judgment did not go so far as to have as a provision of authorisation or licensing that a person should become established through a branch in a member state. There was simply a very general recognition by the Court of Justice of the nature of the mass market in question.

I am unhappy about us having definitions in an Insurance Bill, which we are debating in 1988, which seem to me to raise difficult issues of possible conflict with the freedom to provide services. Companies which are clearly authorised in their own member state, in compliance with the Community Regulations Directive, which are authorised to do business, cannot provide services in this country unless they satisfy an authorisation here, which means that they must establish a branch to do it. That seems to me to be very worrying as far as compatibility with European Community law is concerned.

It may be worrying but it is the actual situation as it is on the ground in that we have an establishment regime here. As the Senator rightly states, you must have a branch here to establish business here. The UK and the Netherlands have a freedom of services regime. I do not know what we can do about that. In legislation like this you can avoid defining "insurer" until you make some progress on the directive. I think it is unwise to do that. All we are doing here is saying that "insurer" means the holder of an authorisation under the regulations. It is a very appropriate definition just to define the insurer as the holder of such an authorisation under either of those regulations. It is the minimum we could do in a Bill such as this in attempting to define "insurer".

Obviously when we make progress on the freedom of services directive that will have to be subsequently incorporated into domestic legislation. I am told that the Court of Justice drew a distinction between large commercial concerns and mass risk insurances in terms of the protections needed under national law. The court recognised that a form of authorisation may be necessary for mass risks insurances. It is a developing area. The Senator will be aware that, on the one hand, we must try to get competition in the industry and, on the other hand, we must try to give the industry, because of its peculiar structure here, time to adapt to a full free and open competition situation. It is for that reason that we have negotiated some postponement of total competition, not so much in this area but in the other side of the business. It is a developing area, obviously.

I do not want to take up time unduly on this. The Minister put his finger on it when he said we are operating an establishment regime. I doubt that we are entitled to continue to operate an establishment regime in the area of provision of insurance services. I recognise the indication in the judgment of the Court of Justice that there may be a need for some kind of authorisation, but some kind of authorisation does not go so far as to say that you must be established.

That is the real problem. That is where the continued application of section 9 of the 1936 Act is certainly questionable. It is something that should be looked at very closely in the context of the Bill we are adopting at the moment. It could have a close scrutiny by the Minister and a requirement that certain conditions were met, but the way in which we have adopted and adapted the two Council directives in 1976 and 1984 goes much further by incorporating the system of authorisation under section 9 of the 1936 Act which, in effect, requires that a company which is going to do business here of that kind must establish a branch. Having made the point, if the Minister does not accept that it would be appropriate to amend it in the definition section of this Bill, I do not think I can push the point much further.

I do not wish to be unhelpful but it is too big a problem for me to tackle in this legislation because it is such a fluid and developing area. For example, we have never been challenged under section 9 by any other country or EC institution. Our present method of operation, of having the establishment regime here, has not been challenged. My understanding of the way the harmonisation process works throughout the institutions is that you run with, develop and work the existing structure until such time as you reach agreement to change it. So long as we are in the process of harmonisation and working with other countries to harmonise the insurance industry, I would not expect to be challenged in regard to the present structure.

There is another aspect to it which the Senator has not touched on. There are very good, sound, national financial reasons for the establishment requirement here. If the Senator looked at it very closely she would conclude and agree with me that to overthrow that in any unstructured or unplanned way would be quite chaotic and would not be in the national financial interests. There are very good, sound, national reasons for this. It has not been challenged. We are playing a full part in the harmonisation process and when we reach conclusions, that is the time to put it into our legislation and to develop our legislative process. It would be premature to do it now. We have got to live with the definitions which are to hand and that is the one that is to hand just now without taking account of the incoming tide which I think would be premature.

Just to pursue one aspect of it, certainly, I can well understand the useful protection to the Irish sector that the requirement of establishing a branch would afford. I can understand the reasons why that was very important in 1936 and why it may still have considerable weight as an argument. I raised this question, as the Minister will recall — and perhaps this question has not really been answered — because I am concerned about the person who is offered insurance particularly from either Northern Ireland or Britain because a lot of this insurance is now offered by post. The person may be totally unaware that he cannot enter into it and take it up. What are the protections and what are the safeguards and how far can they be pursued at present in relation to such an individual?

All that I can say on that is if somebody places business like that, it may be judged by a court not to be legal. How the consumer is supposed to be aware of that is obviously a good question and a different one in many ways. The whole area of one's knowledge of the law is raised here. It may be judged by a court of law to be illegal. The Court of Justice — to go back to that for a moment — could very well decide. I would not like to be challenged in the Court of Justice on this just now because it is evolving so quickly. Anybody who probed it too much might be asking for trouble. It is going in such a direction that I am satisfied and the Government are satisfied the industry here can live with and develop with. If somebody places business elsewhere and gets into difficulty because of that obviously you are into a very tricky legal situation where all of this problem could come up. It might not simply be a matter of just not having known the law. You might end up in a major legal battle going right back to the Court of Justice on the whole thing. That, to my knowledge, has not happened yet.

Question put and agreed to.
SECTION 3.
Government amendment No. 8:
In page 6, between lines 40 and 41, to insert a new subsection as follows:
"(6) The provisions of this section are without prejudice to section 109 of the Insurance Act, 1936 (which as adapted by section 2 (2) of this Act relates to offences by the holder of an authorisation) and references to this Act in subsection (1) and (4) of the said section 109 shall be construed as references to the Insurance Acts.".

Section 3 of the Bill is dealing with the general question of penalties and fines and making it an offence to provide false or misleading information to the Minister and that whole area. This is obviously again a somewhat technical amendment which is necessary for the following reason: section 3 of the Bill provides for offences and penalties as I said. However, there are existing penalty provisions in section 109 of the Insurance Act of 1936. It is necessary because of section 14 of the Interpretation Act, 1937, dealing with offences under two or more laws, to state that the provisions of this section are without prejudice to section 109 of the Insurance Act, 1936. I am advised by the Government's legal advisers that this is the way to proceed.

Amendment agreed to.
Section 3, as amended, agreed to.
SECTION 4.
Government amendment No. 9:
In page 6, line 42, to delete "an undertaking" and substitute "a person".

Section 4, as the House knows, sets out the procedures to be followed with regard to notices and requisitions or directions by the Minister. This amendment is a matter of drafting. It is necessary to refer to a person rather than an undertaking as the scope of the section extends beyond undertakings. It is purely, I hope, a technical amendment.

Could the Minister include an undertaking and person or persons. Would that be more appropriate to the section?

I do not think it is necessary. I think "a person" covers them.

Amendment agreed to.

An Leas-Cathaoireleach

Amendments Nos. 10, 11, 12, 14 and 15 are similar.

I move amendment No. 10:

In page 6, paragraph (a), line 46, to delete "ordinary post" and substitute "registered post".

Progress reported; Committee to sit again.
Sitting suspended at 5.50 p.m. and resumed at 6.30 p.m.
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