I welcome the Minister of State, Deputy Treacy and his officials, Ann Troy and Bríd Bannon, to the committee.
Insurance Bill, 1999: Committee Stage.
I am pleased that this Bill is before this committee as it is ideally suited to Committee Stage consideration in a formal committee such as this. I endorse what has been said about the committee. It has done an outstanding job and it has been a pleasure working with it.
The objectives of the Bill are to allocate regulatory responsibility for insurance intermediaries to the Central Bank of Ireland and to utilise the regulatory powers available to the bank under the Investment Intermediaries Act, 1985; to enable the Minister to make disclosure regulations to require insurance undertakings and intermediaries to make relevant information of a specified nature available to insurance consumers; to strengthen the existing system of notification by reinsurance undertakings and to enable the Minister to make regulations for the authorisation and supervision of reinsurance undertakings and to update existing provisions for offences and penalties and to enhance the powers of authorised officers for the purposes of the Insurance Acts and regulations. In making those regulations the key element is the disclosure of commission to Irish consumers by those acting on behalf of an insurance company's agents and others selling products.
Thank you, Minister. We have spent many hours debating this Bill on Second Stage and we will now focus on the amendments in an effort to deal with it as quickly as possible.
I move amendment No. 1:
In page 5, subsection (2), lines 20 and 21, to delete "and the Insurance Acts, 1909 to 1990," and substitute "the Insurance Acts, 1909 to 1988, the Insurance Act, 1989, and the Insurance Act, 1990,".
This amendment is to take account of a technical error in the Insurance Act, 1989, which updated the collective citation of the 1909 to 1985 Acts but omitted the 1988 Act. The Insurance Act, 1989, needs to be specifically written in to take account of that.
We were not absolutely clear about the Deputy's amendment. We believe the reference to the Insurance Acts, 1909 to 1985, is legally secure. However, in view of the point made by the Deputy I am prepared to have the matter examined and will consider it for Report Stage.
The section states "may be cited together as the Insurance Acts, 1909 to 1999". This Bill will not be passed until 2000 so should that not be amended to read "2000"?
The Bill was published in 1999 and when it becomes an Act of Parliament it will be referred to as the 1999 Act.
Surely it will then be the Insurance Act, 2000? Will it not take the date of the year it is passed? The section clearly states "Insurance Acts". The Act will have the date 2000 rather than 1999. I am raising this in case this Bill is left out of the section.
It will not be left out. We will look at that. The parliamentary draftsman will probably change that to "2000". We will look at it and clarify there are no exceptions or vacuums.
But it does not need an amendment.
With the agreement of the committee, I propose to postpone consideration of section 3 until sections 4 to 12, inclusive, have been disposed of. The reason for doing so is that the amendments to section 3 are definitive in nature, whereas those to sections 4 to 12 deal with substantive matters. Is that agreed? Agreed.
I move amendment No. 6:
In page 8, line 37, before "at any time" to insert "in a case where the information concerned was concealed by the fraud of the defendant,".
As the Bill stands, there is a possibility of open ended prosecution in the District Court. This should be limited to fraudulent concealment of information and there should be a specific statement to that effect rather than leaving it open ended.
The purpose of this amendment appears to be to limit recourse to summary proceedings six months after sufficient evidence has been found to circumstances where evidence was concealed by fraud. The proposed amendment would create difficulties, not least because, presumably, fraudulent concealment would have to be proved, thus delaying matters to the point where the provision would be inoperable. Experience has shown that the proposed provision will permit speedy responses once sufficient evidence of wrongdoing has been uncovered, unless indictment is considered appropriate. Accordingly, I do not propose to accept the amendment.
Amendment No. 7 is consequential on amendment No. 9 and amendment No. 10 is related. Amendments Nos. 7, 9 and 10 may be discussed together by agreement. Is that agreed? Agreed.
I move amendment No. 7:
In page 9, line 6, to delete "It shall not be lawful" and substitute "Subject to subsection (1A), it shall not be lawful".
Amendment No. 7 is required to facilitate the inclusion of amendment No. 9 which provides that the authorisation requirements for reinsurers will not apply to companies based outside the State which write business in the State. Section 22(1) was not intended to apply to bona fide companies accepting Irish reinsurance business, where those companies are themselves registered outside the State and do not have a place of business within the State. In practice, this is the most common format for reinsurance contracts placed by Irish insurers.
Amendment No. 10 is a technical amendment arising from a numbering error which occurred in the preparation of the Bill. This is already in section 22(2) of the Insurance Act, 1989.
I move amendment No. 8:
In page 9, lines 14 and 15, to delete "not holding an authorisation under paragraph (a)” and substitute “who does not hold an authorisation”.
The purpose of this amendment is to make it clear that it applies to a person not holding an authorisation. This was in doubt in the previous drafting and we want to be absolutely certain about what we state in legislation.
In the case of a person not holding an authorisation, how is it made better by saying a person "who does not hold. . . "? That sounds exactly the same to me. Where was the doubt?
It is not clear in paragraph (a) that a person holds an authorisation. They do not hold it under paragraph (a) but only by virtue of paragraph (b). We want to be absolutely clear on that.
So paragraph (b) will read “in the case of a person who does not hold an authorisation under paragraph (a)”.
That is right.
The words "not holding" are being deleted and being replaced with "who does not hold".
That is right. That is the legal advice available to me.
Is paragraph (a) gone completely?
No, paragraph (a) stays. The amendment is made to paragraph (b).
I am sorry if I am being thick about this, but how does changing paragraph (b) make it clear that paragraph (a) now comes into place?
Section 22 of the 1989 Act is being amended by the substitution of the following for subsection (1):
It shall not be lawful for a company registered in the State or any other person operating in the State to carry on, in the State or outside the State, the business of reinsuring business of a class to which the Insurance Acts apply unless-
(a) in the case of a person who holds an authorisation to carry on business in one or more classes, the authorisation extends to those classes of business in which reinsurance is being accepted, or
(b) in the case of a person not holding an authorisation. . .
The strict legal interpretation of the second part is that it could debar Irish insurance companies from placing their reinsurance with a foreign company not domiciled, registered or operating in Ireland. That would be a serious situation. Consequently, the advice is that rewording it makes it absolutely clear and will not debar Irish insurance companies from placing their reinsurance internationally, as they normally do. There are also some companies operating in the IFSC which reinsure.
I am just questioning the English used. How does "not holding an authorisation" become firmed up by changing it to "who does hold"? "Not holding" means "does not hold" or does it have some other English meaning?
"Not holding" means "you do not have".
If the draftsman says it is a better form of English——
The amendment means that paragraph (a) will stand on its own. It is important to be clear in paragraph (b) that a person not holding an authorisation is not in doubt. These are the people we want to cover. It is not clear that a person holds an authorisation by virtue of paragraph (a).
I will not argue.
We are being specific rather than general. Paragraph (a) could be classed as general and paragraph (b) is more specific.
I move amendment No. 9:
In page 9, between lines 19 and 20, to insert the following:
"(1A) Subsection (1) shall not apply to a company registered outside the State which does not have a place of business in the State.".
I move amendment No. 10:
In page 9, line 20, to delete "(2)" and substitute "(1B)".
Amendment No. 12 is an alternative to amendment No. 11 and both may be discussed together by agreement.
I move amendment No. 11:
In page 9, before section 6, to insert the following new section:
"6.-The Act of 1989 is hereby amended by the insertion of the following after section 22:
'22A.-(1) Where the Minister considers it necessary to do so, in the public interest, in the interest of policy holders and in the interest of the orderly and proper regulation of the insurance industry, the Minister may by regulations provide for the application with such (if any) necessary modifications as are specified in the regulations, to the business of reinsuring business of a class to which the Insurance Acts apply of such provisions of those Acts as are so specified.
(2) The Minister may, by regulations, make provision in relation to authorisations and, without prejudice to the generality of the foregoing, the regulations may——
(a) prohibit the carrying on by the person of the business of reinsuring business other than under and in accordance with an authorisation,
(b) provide for the grant of, and the refusal to grant, authorisations by the Minister,
(c) provide for the attachment of conditions by the Minister to authorisations,
(d) provide for the suspension or revocation of an authorisation by Minister where the holder contravenes a provision of the Insurance Acts or a condition attached to the authorisation,
(e) specify criteria which the Minister shall take into account (whether with such criteria as the Minister may consider appropriate or otherwise, as the regulations may specify) before deciding to grant or refuse to grant or to suspend or revoke an authorisation,
(f) specify the form and manner of applications for the grant of authorisations,
(g) provide for the payment of fees to the Minister in respect of applications for and the grant of authorisations,
(h) require the provision to the Minister, in respect of such applications as aforesaid of such information as he or she may reasonably require and for the refusal by the Minister to grant authorisations where such information is not provided to the Minister,
(i) provide for the making of returns to the Minister in respect of such matters and at such times as may be specified,
(j) provide for the notification by the Minister of the person concerned of a proposal to refuse to grant or to suspend or revoke an authorisation and for the making of submission to, and their consideration by, the Minister before deciding whether to give effect to the proposal, and
(k) provide for the appeals to the High Court against refusals by the Minister to grant authorisations or against revocations or suspensions by the Minister of authorisations.
(3) Regulations under this section shall not apply to a person in so far as he or she carries on the business of reinsuring business by virtue of section 22(1)(a).
(4) Regulations under this section may contain such incidental, supplementary and consequential provisions as the Minister considers appropriate.
(5) A person who contravenes a regulation under this section or a condition attached to an authorisation shall be guilty of an offence.
(6) In this section, "authorisation" means a document in writing in such form as the Minister may determine granted by the Minister to a person and authorising the carrying on by the person of the business of reinsuring business of a class specified in the authorisation.'.".
An amendment to this section was necessary in the light of advice from the Attorney General that the section, as drafted originally, did not meet the requirements of the Constitution. The purpose of this section is to provide the Minister with powers to introduce full authorisation and supervision of reinsurance companies. It is expected that the provisions of section 5, together with the revised treatment of Irish registered non-resident companies, will prevent the establishment of reinsurance companies of doubtful reputation in Ireland. In any case, the Minister will be in a position to take remedial action by virtue of this section.
I know the Minister has had discussions with the Irish Insurance Federation and that a great deal of concern has been expressed to him about the reinsurance business. The churning scandal emerged in the reinsurance business because the whole concept of reinsurance allowed churning to happen. Under this amended section, will the Minister introduce regulations for general insurance companies to bring them under the requirement to disclose commission? Is the Minister of State giving himself a power, without the need to come back with primary legislation, to introduce disclosure regulations for general insurance? That is not covered openly in this legislation. I wonder whether all the extra sections extend ministerial powers without the need for primary legislation?
My point is similar - the question is whether the Bill will allow for the introduction of disclosure in the whole insurance business. It is important to have the matter clarified. The history of this Bill is that originally the Minister intended to introduce an order but found there was a need to introduce legislation to provide for that order. Will this order allow for further disclosure at some future date?
The Bill, as drafted, will exclude group pensions from the disclosure requirement for large institutions, as opposed to small brokers. Regulations are being introduced for the smaller end of the market while the larger end is excluded from the disclosure requirement in respect of companies taking out group pension schemes. The Pensions Board will take on the larger schemes but it will not come under the insurance regulator. A large financial institution taking out a group pension scheme with ten or more members will not have to comply with the disclosure regulation while a smaller group scheme will.
A number of issues have been raised. In response to Deputy Owen, churning has taken place on the ground where products are being sold to clients. They sign up for a period and perhaps a new agent from the same company arrives a year or two later with a much better product and suggests they change. They are churned into the new product. Commission has to be paid on both. The ordinary citizen does not realise the commission is so high. The new product may be somewhat better but not as good as the consumer had thought.
I cannot see where there is an opportunity for churning in the reinsurance industry. The role of the reinsurance industry is to insure the liabilities of existing insurance companies and to carry the liability in a global corporate way for them. The only difficulty we have, albeit a very small one, is that one or two non-resident Irish registered insurance companies, registered as reinsurance companies, sold products as an insurance company. That was discovered and we have to take account of that. Part of the change here is to meet that position. The advice from the Attorney General is that we need to make a change here because if we proceeded with the section, as drafted, it could create, similar to the earlier section, a problem for companies that want to place their corporate liability with an insurance company out of the island of Ireland. That would not be to the advantage of consumers or the country.
We have had discussions with the IIF. It is anxious to have insurance regulated. However, the IFSC is not anxious to have the reinsurance industry regulated. This Bill does not propose to regulate the reinsurance industry but to clarify that which can be done with the insurance industry though its opportunities and options with reinsurance whether in Ireland or externally. Deputies Owen, Naughten and Perry asked whether regulations would be drawn up for the general side without coming back with primary legislation. They are covered in section 7. That will be a matter for decision in the future. The provisions of section 7 allows us to do that through section 43F.
This Bill is not about disclosure or pensions. The pensions, as Deputy Perry has said, will be regulated by the Pensions Act. The difference between corporate pensions and group pensions is that they have high qualify professionals to advise employees and union members as distinct from the consumers who must trust his their judgment and the advice they get on the day to make the decision. They are much more vulnerable. A group has much greater protection, irrespective of the organisation or product one is dealing with, in regard to the bargaining control, power and resources to get the best advice possible, than an individual. This Bill deals with protecting the rights of the consumer.
I wish to raise two brief points. On the last point about the definition of a group pension scheme, a group scheme, by definition, consists of three or more people. A group of three people will not necessarily have the buying power referred to by the Minister of State in relation to getting advice about the best scheme or programme. That argument is not valid for small group schemes. Subsection (4) in amendment No. 11 reads:
Regulations under this section may contain such incidental, supplementary and consequential provisions as the Minister considers appropriate.
Given that this seems to be an open-ended statement will the Minister of State clarify what he is talking about here because it appears to be ambiguous?
From what section did the Deputy quote?
Subsection (4) in amendment No. 11.
That subsection reads:
Regulations under this section may contain such incidental, supplementary and consequential provisions as the Minister considers appropriate.
The Minister of State has given himself everything.
What is his intention in relation to this subsection?
Given the lack of consumer interest in reinsurance should the Minister of State ignore or neglect that area of legislation? In view of the cost implications of taking out insurance products and given that payments to intermediaries are signed by the consumer, full costs cannot be made available until the policy risk is underwritten by the insurance company and, therefore, are not available at the point of sale.
Will the Minister clarify what is meant in subsection (3) of amendment No. 11 and how the reference to section 22(1)(a) applies?
Subsection (3) reads:
Regulations under this section shall not apply to a person in so far as he or she carries on the business of reinsuring business by virtue of section 22(1)(a).
The regulations we are creating do not refer to the reinsurance business as such. We are not regulating the reinsurance business. If that is required in the future it will have to be given consideration. It is an international business and is covered by EU directives and other market considerations. It is an issue we will have to consider in a specific way rather than in a general insurance Bill. We want to ensure the liabilities are reinsured, that the maximum options are available to the insurance companies to place that reinsurance at the best deal possible, thus increasing the profitability of the insurance companies and creating a greater liquidity ratio to ensure they can charge lower premiums for the insurance cover provided to clients.
Deputy Naughten asked about subsection (4) which reads:
Regulations under this section may contain such incidental, supplementary and consequential provisions as the Minister considers appropriate.
This is a catch-all statement, and the reason for it, referred to by Deputy Owen, is that people may complain about certain situations, whether by telephone or to an elected political representative, but at the end of the day people will not waste their time unless somebody is prepared to make a de facto statement saying they are the victim of company X for certain reasons and that the matter should be investigated. The company will be named and there will be something to go on. If all general oral statements which make allegations against companies were investigated the State would have time to do nothing else.
The purpose of the subsection is that in future the Department or the regulator will be able to respond to complaints from consumers saying they were misled, that their business has been misplaced or that they have received misguided information, and if necessary make new regulations to cover eventualities. We do not want to have to go to the Attorney General or the parliamentary draftsman and perhaps wait up to four years before legislation is passed to protect the interests of consumers. The purpose of the section is to ensure we can respond to whatever bona fide demands are placed upon us.
The Minister of State has made a valid point, but the issue about regulations is that they are laid before the House and there is no opportunity for Members of the Oireachtas to debate them. Unless such regulation is objected to within 21 days it is automatically enforced, and we are not given an opportunity to tease it out. We should examine some way of allowing for the implementation of orders or regulations while ensuring Members have an opportunity to discuss new changes.
I have no difficulty with that. The demands on Members of Parliament are such that we probably do not have time to pursue adequate consideration of secondary legislation. The law is clear in that secondary legislation is produced by the Minister, published in Irish Oifigiúil andlodged in the Dáil, with Members having 21 days to raise an issue on it. It must be published in the national newspapers and can be raised via parliamentary question, on the Adjournment or by special notice question. Our problem is that we do not have the time to give to secondary legislation——
Or a mechanism.
The mechanism for awareness is a problem and the House will have to address this, be it at Committee on Procedure and Privileges or by some other means.
I welcome Deputy Creed who has been appointed to the committee. We wish him well and look forward to working with him.
Amendments Nos. 15 and 32 are related to amendment No. 13, and the three amendments may be discussed together by agreement.
I move amendment No. 13:
In page 11, to delete lines 1 to 15 and substitute the following:
"43B.-An insurer or an insurance intermediary shall pursuant to the Directive, in relation to life assurance, provide to a client-
(a) before the conclusion of a policy of insurance or, if not practicable at that time, not later than seven days after the conclusion of the policy, the information specified in Part A of the Annex II, and
(b) during the term of a policy of insurance, the information specified in Part B of Annex II,
and the Minister may prescribe the form and manner in which such information is to be provided, including the form of a declaration to be signed by a client on receipt of the information and the manner and period in which the declaration is to be signed.".
The only real change in the three amendments relates to paragraph (a) in amendment No. 13 which provides that if it is not practical to furnish the information at the time of completing the policy it can be furnished within seven days of the conclusion of the agreement on that policy.
I tabled this amendment in light of the background to the provision of information by independent small brokers who provide the consumer with objective and appropriate advice in relation to policies. The absence of such advice would leave consumers susceptible to the potential of abuse by the dominant position of the large players in the market such as banks and insurers.
Irish brokers, by means of their independence and diligence, have ensured the insurance market is extremely competitive. Commission payments underwrite the provision of independent advice and services, which can only be delivered by intermediaries. The average consumer would object to paying up front fees for advice on services. The intermediary payment for the provision of advice or service is contingent on the consumer purchasing a product through the intermediary. The intermediary's commission necessarily reflects all the overheads of the professional time spent with the client, including with those who may not purchase a product.
Prior to the completion of the policy, the consumer can only be given information regarding surrender values which are indicative until the policy is taken out. The amendment would allow the indicative value to be given because it is not possible to give a complete value until the policy is taken out. Under the legislation as it stands the broker will have to give that value prior to the completion of negotiations. The same applies in relation to commission. There might be additional work involved before the policy is underwritten and these commissions can only be given indicatively until the policy is signed and the broker is aware of the costs involved and the surrender values. The amendment allows for that information to be provided within seven days to the policy holder.
The other amendments relate directly to this, and I ask the Minister of State for his comments.
I think the definition of commission payment should be included in the Bill. There should also be clarity in terms of the definition of sales and remuneration. Smaller companies are competing with larger companies which can offset charges. The Bill is only aimed at regulating part of the market. For example, full disclosure of commission is only required from brokers dealing with smaller companies. There should be transparency in terms of large and small companies.
I am somewhat intrigued by this, but there are a couple of matters which are hard to fathom. Insurance policies have always constituted a relatively difficult area. Is it true that the surrender value will not be indicated until after someone signs on the dotted line? We cannot expect someone to enter into an agreement if they do not know what they are purchasing. It is too late once the ink is dry or 24 hours later. Everything should be upfront in this business. There is a perception among the public that there is a hidden agenda. If we do nothing else today except remove that veil, we will have done a good day's work. Will the Minister of State clarify that?
I listened with interest to the contributions of the three Deputies. It is not the first time I have heard Deputy Naughten's contribution. These arguments have been made over the past three years and I have given them much consideration. Deputy Boylan has put his finger on the problem. People must know what they are buying - caveat emptor. The Bill seeks to ensure that there is absolute disclosure to the consumer. It is the same in the auctioneering business. If a person is a licensed auctioneer, he or she must stand up at an auction and declare what commission he or she will charge, whether it is 5% for the temporary letting of property, 2.5% in the capital city or 3.5% in rural areas for selling a fixed asset or 15% for selling furniture and chattels. The charge a purchaser pays is publicly known before he or she puts up his or her hand and pays the money. The law has existed for a long time on these matters.
The purpose of amendments Nos. 13, 15 and 32 is to provide that information may be provided to the policy holder within seven days of the conclusion of the policy. However, we do not have a say in this as a decision has been taken for us. Section 43B implements the disclosure provisions of the third life directive, which is a European directive passed on 10 November 1992 by the European Parliament and the European Commission, put into law across Europe on 9 December 1992 and implemented and transposed into Irish law under SI 360/1994. These provisions are required by the directive, including the disclosure of the information specified before the conclusion of the contract. It is not possible to alter that or to reverse the third directive.
As regards the provisions of this Bill, given that the intention of disclosure is to enable the consumer to make an informed choice, I could not agree to such an amendment. Ideally the consumer should make his or her choice at the point of sale and then have the cooling off period to confirm that the policy they have chosen meets their needs. In other words, the sale is negotiated and agreed and there is a cooling off period before a decision is made. He or she can then instruct the bank, agent or the person selling the product that he or she is proceeding and a cheque can be issued. We cannot change the third life directive. As Deputy Boylan said, it is vital that people know exactly what they are getting, what it costs and what it is worth.
I do not want to argue with the points made by the Minister of State or Deputy Boylan. Deputy Boylan hit the nail on the head. We are talking about practicalities. Would it not be feasible during the cooling off period and before people are tied into the contract to ensure that all the information is made available to them? Brokers should have the proper calculations and should not mislead the consumer.
We have already covered that ground. The Minister of State has already indicated that there is a European directive on this issue. We have a long Bill to discuss and the Deputy is asking the same question again.
I will respond to the last point Deputy Naughten made. As regards disclosure, we propose to make it clear in a simple format which has been agreed with the industry what a person is investing, the costs, the number of years and the expected return. I will make it as easy as possible in the regulations I propose to implement. If I was strict, I would say 12 months from the date of the signing of the contract. I am allowing a flexible period to be fair to everyone. We will discuss that later.
I apologise for taking part in the debate now given that I did not make a contribution on Second Stage. I am not as well informed as some of the previous speakers. Perhaps the industry has moved a step ahead of the legislation because many direct insurance companies have been set up and brokers are not involved. I am sure most members are aware of them. Is the Minister of State satisfied that the policies bought directly from companies are covered under the provisions of this legislation? Will companies which provide policies directly to clients and not through brokers be obliged to display their profits and rates of commission? I understand where many brokers are coming from. This is their livelihood and it is their right to make a song and dance about being squeezed by this legislation. However, people who provide insurance directly are getting a good share of the market. Can the Minister of State assure me that there is a level playing pitch in terms of what brokers and companies which deal directly with clients are obliged to disclose?
I seek clarification on the levies and charges for all sections of the industry. Disclosure is selective in that it only covers a fraction of the industry. Travel agents are excluded from insurance costs, which is a big issue.
I understand an amendment was tabled dealing with travel agents, which we will discuss later. Deputy Perry mentioned definitions earlier. The definitions will be discussed later in the Bill.
As regards Deputy Creed's point, it is my intention that there will be disclosure of commission and a notional amount of profit. I will provide that in the regulations.
Will that cover companies which provide direct insurance?
It will cover everyone involved in the industry. I have signalled since October 1997 to everyone involved in insurance, whether at functions, meetings or conferences, what we intended to do. I am the first Minister of State in the history of the State to address every organisation's annual general meeting since 1997. I have not rushed anyone into it. We have spent three years dealing with this issue. This Bill was published last December. Every opportunity has been given to people with an interest in the insurance industry to put forward proposals and recommendations for amendments. I know they have done that and that they have briefed all Members, which is good. Good legislation is about achieving consensus in the best interests of the country. I will have a detailed look at the Bill and at what is required. I will take the advice available to me and make a final decision in the best interests of the consumers.
Is the Minister of State saying he will look at the whole insurance industry?
No. I said that once the Bill is passed I will look at it in totality. I am bringing in secondary legislation.
The whole insurance industry?
The Bill covers the industry. The whole insurance industry covers a huge gamut.
The point Deputy Perry was trying to make on this section is that we are talking about bringing in disclosure for one element of the insurance industry——
The brokers. The Minister of State is arguing that disclosure will benefit the consumer. If that is the case, why is disclosure not being brought in for the entire industry, rather than for just one element of it?
I thought the Minister of State indicated it also applied to direct provision.
I intend to bring in regulations that will give the maximum choice to consumers to get the best information possible on all aspects of the products they are purchasing, irrespective of who is selling that product.
It is a pity we have not seen the regulations.
We cannot see the regulations until the Bill is passed. One is not allowed make regulations until such time as——
Will the Minister give us an insight into what he going to do? It is a chicken and egg situation.
Regulations are secondary legislation attached to primary legislation. The primary legislation must be passed——
Most people in the industry are saying this appears to be only half a Bill.
I never heard of a half Bill - every Bill is a totality. The cement Bill has just gone through and——
If we could clarify this point for Deputies Perry and Naughten it might avoid unnecessary discussion on other sections. The Deputies are asking for clarification of the regulations that will be based on this primary legislation. I presume when the Minister of State drafts the regulations he will reflect on the discussions that took place during the passage of the primary legislation.
No, Chairman, we are asking for clarification of the issue of disclosure. Some of the later amendments go into more detail on that. Section 7 relates to disclosure. We are talking about only one element of disclosure. The Minister of State has the power under section 7, as he stated when we discussed section 6, to bring in disclosure for the whole insurance industry. We want to know whether he is prepared to do that. That is fundamental to this legislation because the issue of disclosure is the backbone of this Bill. He has made the argument that disclosure is of benefit to the consumer. Why is disclosure of benefit to the consumer in relation to one element of the insurance industry but not in relation to another?
Can the Minister clarify the point raised by Deputy Naughten in relation to the issue of provision of information and disclosure?
I thought all members were aware of what we proposed to do on disclosure. Draft documentation has been made available to the industry at every level. It has been published in the newspapers, not by me but by people who received it for consideration. I thought all Members of the House had been circulated and briefed on it at this stage.
I can indicate to the Deputies what we propose to do. Someone buying a policy from any person or organisation can ask what the projected benefits under the policy are and what intermediary remuneration or sales remuneration is payable. Where a policy acquires a surrender or maturity value, an illustrative table, which I propose to divide into two parts, shall be provided to the client by the product provider in a format which is agreed by at least two thirds of the industry at this stage. Where the policy does not acquire a surrender or maturity value, the client will be informed in writing of this fact and part two of the illustrative table shall be provided to the client.
In the first year, it will show the cumulative amount of premiums paid in section (a)(1); section (b) will show the projected total deductions for the costs of protection benefits; section (c) will show the projected total deductions to cover expenses and charges by the insurers; section (d) will show the projected investment growth, including bonuses; section (e) will show the projected surrender and maturity value after any penalties, in other words, what its maturity value is after the first, second, third, fourth, fifth, tenth, 15th and 20th years.
There were situations in the past where people surrendered insurance policies because they could not meet their commitments as somebody had died, they had a financial crisis or they lost their job but the policies had a negative value. It is very hard to see how money one invests could have a negative value. People must know exactly where they stand, which is the whole purpose of this. The insurance industry operates on the basis of front-ended commission payments. That is its business if that is what it wants to do. However, we must ensure the consumer is not the victim of that. Part two will cover the cost of total payments, benefits and services to insurance intermediaries' sales employees to cover intermediary sales and remuneration.
In addition, within this Bill we also hope to give certain rights to the consumer to query certain issues at certain times and to get information. If that information is not voluntarily forthcoming, section 6, which we have already discussed, will allow the Minister make regulations to ensure it will be made available to the consumer.
I am not putting a heavy hand on people in the insurance industry, telling them exactly what they must do and that there will be serious repercussions if they do not do it. We are telling them the minimum they have to do. We are operating on the basis of trust here between the insurance industry, the intermediaries, agents and consumers. Based on trust, we will respect each other and do our business together within the minimum requirements. If that minimum requirement is not good enough, the Minister of the day will have power to expand those requirements. That is the whole thrust of what we are trying to achieve.
I can make a copy of this document available to the Deputies. I have no problem with that. I know it has already been circulated.
The absence of a requirement for equivalence of disclosures in the Bill provides an unfair advantage to banks which sell insurance products. Will the same regulations apply to banks which sell insurance?
I understood the raison d’être for this was an EU directive to which the Minister of State referred earlier. There appears to be additional——
The amendments proposed by Deputy Naughten would negate the third life directive of the European Union. We cannot do that.
I accept this legislation is giving legal effect to that.
No, we gave legal effect to that in 1994.
Are there additional provisions for disclosure in this Bill over and above our minimum obligations arising from EU directives?
That is what I wanted to know.
What about Deputy Perry's point in relation to banks?
My intention and that of my Department is to achieve equivalence. However, we must wait for the regulations to achieve that equivalence. I intend to make it as clear as possible to everyone selling insurance products, no matter who they are. However, the Deputy will accept that decisions made by people long before my time, giving banks control of companies - which I would not have given if I were in charge - has created a little distortion in the financial services market. That does not help me get into the inner sanctum of these institutions. There are subsidiary companies of great banking institutions and there can be some distortion in that situation. However, I hope to make sure equality of opportunity will prevail across the board for consumers, as far as I can.
I think the Minister of State is missing the point. He is giving a huge advantage to banks which have subsidiaries selling insurance if he does not intend to regulate them at this point in time.
It is my intention to achieve that equivalence.
In the regulations.
I thank the Minister. I hope Members found that discussion in relation to——
I look forward to seeing the regulations.
I think many people are looking forward to seeing them. Members have talked about elements of the industry and have said we are only regulating elements of it. If they are saying they want everything to do with insurance regulated in a way in which there will be total disclosure, I would like to know that. We are slightly confused because there are several types of insurance cover and insurance products. There are many elements to the insurance industry.
There is no point regulating the same product in two different areas, which is happening. Small brokers are being regulated while larger ones are not.
At the end of the day, they are insurance products.
It is like a selling a product. The same rules should apply to large and small brokers. What about equality?
That is my goal.
This Bill is not doing that.
We will see.
Thank you. I hope Members found the discussion helpful and that we will be able to——
Are all aspects of insurance and insurance brokerage covered by this Bill? The big boys cannot have a field day at the expense of the smaller brokers.
I refer to the point raised by Deputy Creed and to the popular company Quinn Direct from which one can get a quote by e-mail. Is that covered by the Bill?
We will come to that later. I have tabled a special amendment to take account of that.
I hope we will be able to move speedily through the other amendments as we have spent much time debating the wider issue of the Bill.
I move amendment No. 14:
In page 11, lines 18 and 19, to delete ", subject to section 108 of the Insurance Act, 1936, be provided in the English language" and substitute "be provided in both official languages of the State".
Section 108 of the Insurance Act, 1936, is quite a restrictive provision. It states that if the insured fills out the proposal wholly in Irish and requests to be corresponded with in Irish, then the insurer shall do so. The Bill provides that unless this section is complied with, the insurance shall be given in English. We propose that it should be available both in Irish and English. I understand a language equality Bill will be introduced and it would be much more appropriate for this to be available in both languages.
I refer to the Electronic Commerce Bill, 2000, and whether these life assurance policies are in electronic form as well as in English and Irish, whether Bills and polices can be deemed legal even if they are only in electronic form, whether they can be sold over the Internet, whether electronic signatures, electronic witnessing and electronic sealing will apply and that if a company wants to sell to France or Germany from Ireland, whether it will be able to do so electronically and in electronic form.
I have tabled a later amendment to take account of all that. We have amended the Bill to take account of progression in e-commerce.
There is a lot of merit in Deputy Upton's amendment but there are a lot of difficulties too. The amendment provides that insurers offering insurance in Ireland would automatically have to make documentation available in Irish and English. The existing provision means that documentation must be made available in Irish on the request of the client. In other words, if the client requests documents in Irish, they are entitled to get it under the present provisions and it is up to the company to provide it.
If the Deputy's amendment is agreed to, it makes it mandatory on all companies operating in Ireland to make sure that all documentation is in Irish and English. The reason for the existing approach is to achieve a balance between the requirements of clients and the need to encourage insurers from other member states to become active on the Irish market thus providing competition and a downward pressure on prices.
I have great sympathy with this amendment. I am prepared to give it further consideration to see if we can come up with a solution to the request because I believe we have a duty to the people who live in the Gaeltacht to ensure that they are able to transact business through our first official language. I would like to be able to achieve that but it is not that simple. I am prepared to give the matter further consideration before Report Stage if the Deputy is prepared to withdraw the amendment. The Deputy is free to table this amendment again on Report Stage and I have no difficulty with that.
Amendments Nos. 16, 19, 20, 22, 26, 27, 33 and 34 are related and they may all be taken togther by agreement.
I move amendment No. 16:
In page 12, to delete lines 25 to 28 and substitute the following:
"(v) a written statement that the premium includes the cost of the policy and any other amount payable, if any, provided always that the regulations:
(a) shall require the equivalence of disclosure as between commission payments to an insurance intermediary and sales remuneration to sales employees of an insurers,
(b) shall not require the disclosure of the existence of commission payments to an insurance intermediary or sales remunerating to sales employees of an insurer in respect of pure protection products;”.
Amendments Nos. 17, 18 and 19 are alternatives to amendments No. 16. This brings us back to the point we made about the disparity of disclosure and the need for equality of treatment. The Minister of State made the point that there is a need for equivalence within the industry and I agree wholeheartedly with that, but it brings us back to the point we made about the major players in the industry, the banks, the insurance companies and the large brokerages which will be given carte blanche to avoid transparency and competition. Clearly, this is not in the interest of the consumer and distorts a level playing pitch for competition.
Equivalence of disclosure by product producers and a dedicated unit within a supervisory authority to monitor and enforce satisfactory disclosure by product producers and to investigate and adjudicate complaints regarding same is required. Brokers are concerned that in setting out to increase consumer protection in the Bill, it distorts a level playing field for competition in the industry. By focusing on disclosure of commission payments, the customer's attention is drawn away from the total cost of the policy. Banks and insurers are in a position to fudge their disclosure details leaving the independent broker at a marked disadvantage.
Clearly, what is required is a guarantee of equivalence of disclosure to ensure a level playing field of free competition. The disclosure requirements undermine the independent intermediary delivery channel within the marketplace and ignore the unrivalled independence of advice which can only be channelled through the independent brokers to the consumers.
This brings us back to the argument we made earlier that we want to see equality of treatment within this section of the industry. The Minister of State said he wanted equivalence in it and I urge him to accept the amendment.
The second element of the amendment relates to the pure protection products. The brokers believe it is unnecessary for consumer protection to oblige an intermediary to disclose the amount paid in regard to pure protection products where the consumer, on payment of premium, is receiving a guaranteed payment for a specified sum on the happening of a specified event. The sum is unaffected by the commission paid. Disclosure on pure protection products has no impact on the policy benefits as these are term policies without an intrinsic value. To eliminate the need for disclosure on the pure protection products at this stage would demonstrate the distinction between the policy types.
As the Minister of State is aware, the IBA and the Consumers Association of Ireland are in agreement that disclosure on pure protection products is meaningless to the consumer. I urge him, in light of what he has already said, to accept this amendment.
I ask the Minister of State to include equivalence in the Bill, to monitor guidelines and to remove the provision on disclosure in regard to pure protection products. There is no gain to the consumer from the commission point of view. The benefit is the same. What is the benefit of disclosure on pure protection products from the commission end? It is important to look at the inclusion of equivalence on an illustrative table as well.
I am somewhat confused by the Deputy's remarks. When speaking to his previous amendments he said it was important that there was equivalent disclosure and that all elements of the industry would have disclosure. Now he is suggesting that we should exclude——
What is the benefit to the consumer?
In these amendments the Deputy proposes that there should be exclusion and segmenting, and that there should be disclosure in one area but not another. What would be the benefit to the consumer from this approach? Consumers will be reassured that they know exactly——
The Minister of State is only proposing to regulate half of it.
The Deputy is presuming what I intend to do. The benefit to consumers is clear. They are paying for the product, they know the cover involved, the cost and what will be the breakdown of their total contribution to the product. There is, therefore, absolute reassurance to the clients for the cover and the product they are being given, whether it be pure protection products or others, such as life products.
These amendments seek to secure the commitment to equivalence of disclosure and they exclude pure protection products from the disclosure regime for life products. I support fully equivalence of disclosure and I have made that clear from the time I took office. However, it may be counter productive to use terms in the Bill which would be covered in the regulations, where they will be more easily amended, should that be necessary in the light of experience. I have no objection to a statement in principle that the regulations should required equivalence.
With regard to the second objective, the exclusion of pure protection products, the reasons for which disclosure has been introduced apply as much to protection products as to investment products, so that the consumer is fully informed and, therefore, empowered to make a rational choice of the insurance products available to them. It will also ensure that the consumer is aware that commission rates vary and will introduce competition to moderate rates of commission, which are now not subject to controls under section 37 of the Insurance Act, 1989. I removed that cap. The caps applying until 1999 were removed by me, partly because they would have been ruled to have been anti-competitive and partly to encourage brokers to seek quotes from insurers based in other member states, especially in the motor insurance area, to increase competition on the Irish market. However, introducing such a loophole, as is proposed by these amendments, presents an opportunity to frustrate the intention of disclosure. Consequently, I will not be able to accept these amendments.
I will withdraw amendment No. 16 with leave to reintroduce it on Report Stage.
Amendments Nos. 23, 24, 25 and 36 are related to amendment No. 17 and amendments Nos. 17, 23, 24, 25 and 36 may be taken together by agreement.
I move amendment No. 17:
In page 12, to delete lines 25 to 28 and substitute the following:
"(v) a written statement that the premium includes the cost of the policy and any other amount payable, if any, provided always that the regulations shall not require the disclosure of the existence of commission payments to an insurance intermediary;".
Along with amendments Nos. 18 and 19, this is an alternative to amendment No. 16. As I have already withdrawn amendment No. 16 with leave to reintroduce on Report Stage, I withdraw this amendment.
Amendments Nos. 21, 28 and 35 are related to amendment No. 18 and amendments Nos. 18, 21, 28 and 35 may be taken together by agreement.
I move amendment No. 18:
In page 12, to delete lines 25 to 28 and substitute the following:
"(v) a written statement that the premium includes the cost of the policy and any other amount payable, if any, provided always that the regulations:
(a) shall require the equivalence of disclosure as between commission payments to an insurance intermediary and sales remuneration to sales employees of an insurer; and
(b) shall not require the disclosure of the existence of commission payments to an insurance intermediary or sales remunerating to sales employees of an insurer;”.
I move amendment No. 24:
In page 13, to delete lines 8 to 14 and substitute the following:
"(c) the form and manner of illustration of the amounts of any projected benefits, expenses, charges or other payments payable and of illustrations of the means by which the amounts aforesaid are calculated;".
On a point of clarification, I reserve the right to reintroduce the amendments related to and associated with amendment No. 16 on Report Stage.
That is no problem.
I move amendment No. 29:
In page 13, lines 17 to 19, to delete ", concluded after the coming into operation of regulations made under section 43D,".
I move amendment No. 30:
In page 14, between lines 20 and 21, to insert the following:
"(3) For the purposes of section 43B and this section, the Minister shall not exempt occupational pension schemes from the disclosure requirement of these sections.".
This refers back to the point made earlier about the banks and the amendment in my name dealing with pensions and group schemes. One of the main objectives of the Bill is to ensure consumer protection and provide for disclosure on a level playing field. Group schemes are defined under section 2 of the 1990 Act. The draft regulations pursuant to section 51 of the 1980 Act, which the Minister proposes to adopt, exempt such group schemes from the proposed disclosure regime. Since group schemes can have as few as three members, consumer protection is not achieved by the exemption of such schemes from disclosure requirements. Furthermore, their exemption gives the providers of such group schemes an unfair advantage over the independent insurance brokers to the detriment of the level of competition in the marketplace and, consequently, to the detriment of the consumer. I am sure the Minister of State will accept the amendment in view of the argument he has been making to date in relation to competition.
I have a lot of respect for all members of the committee, especially Deputy Naughten. I would like to accept the amendment and will go as far as I can in that regard. The purpose of the amendment is to include occupational pension schemes in the disclosure regime. It is my intention, following consultations with the Pensions Board, to provide in the disclosure regulations that disclosure will be made to the trustees of occupational pension schemes having more than three members. This has the effect of minimising costs for the members. The intention is that the trustees will in turn pass on the information to the members of the scheme and if members are experiencing any problems I will review the position, in regulation and otherwise.
While I have sympathy with the amendment, such provisions are best left to the regulations where amendments could easily be made, if necessary. I have considered the matter in detail. In order to have trustees it is necessary to have three members. This is as far as I can go to accommodate the Deputy. I will do it in the regulations if he withdraws the amendment.
This comes back to my argument on the regulations. We have the opportunity to copperfasten this aspect in the legislation. I do not understand why the Minister of State will not include in the legislation, either by way of an amendment in his name or by accepting one of ours, that which he says he will introduce to the regulations. I ask him to reconsider the matter before Report Stage and to introduce an appropriate amendment then.
With regard to the group scheme, one of the main objectives of the Bill is to ensure consumer protection and to provide for disclosure on a level basis. Group schemes are defined under section 2 of the 1990 Act. The draft regulations pursuant to section 51 of the 1980 Act, which the Minister proposes to adopt, exempt such group schemes from the proposed disclosure regime. Since group schemes can have as few as three members, consumer protection is not achieved by the exemption of such schemes from disclosure requirements. Furthermore, their exemption gives the providers of such group schemes an unfair advantage over the independent insurance brokers to the detriment of the level of competition in the market place and, consequently, to the detriment of the consumer. The Minister of State has a unique opportunity to put this right. He is concerned with pro-viding a level playing field for everybody in the trade.
I am amazed at the provision regarding three members of the group schemes - the same regulation should apply to all.
I am trying to minimise costs on members and on the insurance industry in communicating information so that nobody can say we are creating an artificial impediment in driving up an inflationary spiral in the industry.
Nobody wants that.
Absolutely. I wish to reiterate that primary legislation cannot also be secondary legislation - I refer here to the regulations - because separate structures and systems attach to both. I listened with interest to the Deputy's point and I am prepared to consider this matter before Report Stage to see if it may be feasible, practical or sensible to include the provision in the amendment.
I withdraw the amendment with leave to re-introduce.
I move amendment No. 31:
In page 14, between lines 20 and 21, to insert the following:
"(3) For the purposes of subsection (1)(a)(v) and (vii) and subsection (1)(c) of this section, the Minister shall provide in the regulations concerned for the establishment of procedures to:
(a) monitor and enforce, and
(b) investigate and adjudicate on complaints concerning, compliance with these provisions by an insurer, insurance intermediary or actuary.”.
I return to the point I made in respect of the amendment relating to disclosure and the fact that all the organisations, including the banks and the major insurance companies, should be involved. A procedure should be put in place to monitor and enforce the disclosure requirements and adjudicate on complaints in relation to disclosure.
It is not sufficient to state that equivalence will be provided for in the Bill. We must establish a dedicated unit within the new supervisory authority to ensure there is satisfactory disclosure by all product producers and to investigate and adjudicate on complaints, otherwise the guidelines will be open to manipulation and massage in order to reduce the distribution costs of the large players vis-à-vis the broker channel.
I support the amendment. It is important that a mechanism to monitor and enforce the requirements and to investigate and adjudicate on complaints be put in place. Such a mechanism will also be important in terms of ensuring compliance with the editorial guidelines. It is vital that we establish a dedicated unit to monitor compliance with the regulations. Are there many people dealing with this at present in the Department?
With the Bill?
No, with monitoring the insurance regulations.
We have an insurance section which deals with all aspects of insurance. This is a huge area of activity which includes the International Financial Services Centre, in respect of which we have responsibility for promoting and attracting investment. We have been very successful in that regard in co-operation with IDA Ireland.
How many people are employed in that unit?
There are 30 top quality people employed in the entire insurance division.
I do not doubt that they are all high quality individuals.
The purpose of the amendment is to ensure that the Minister will introduce an enforcement regime in respect of the equivalence provisions. The implicit intention of the Bill and the subsequent regulations is to monitor and investigate implementation of the provisions of the Bill and of the regulations. The amendment proposed by the Deputy is, perhaps, too narrow. It would be preferable to provide for monitoring of the implementation of the disclosure regulations as a whole, including equivalence. Consumer complaints should also be entertained. Given that we have not explicitly provided for this monitoring in the Bill, I suggest that an amendment which would provide that the Minister "may" rather than "shall" might be more acceptable. On the basis of what has been said, I am prepared to consider the matter before Report Stage.
I withdraw the amendment with leave to re-introduce.
I move amendment No. 37:
In page 16, line 1, to delete "In this Regulation" and substitute "In this section,".
Section 43F(1)(c) of the 1989 Act provides that regulations may prescribe that during the term of a policy renewal notices shall be provided to the client. Section 43F(2) defines the term “renewal notice”. Therefore, the reference should relate to section rather than to regulation.
I move amendment No. 38:
In page 16, between lines 15 and 16, to insert the following subsection:
"(2) The court may decide if it is in the interests of justice to do so that an insurer who fails to comply with a provision of regulations made under this Part may thereby be disentitled to repudiate liability under the contract of insurance concerned, notwithstanding default or omission on the part of the insured.".
Where an insurance company fails to comply with the regulations it should be possiblethat the insurer should be disentitled to repudiate a contract in order that the consumer should not be disadvantaged. In addition, a provision should be put in place to allow the court to decide whether it is in the interests of justice that the insurer cannot merely walk away.
The amendment proposed by Deputy Upton seeks to introduce an additional penalty for insurers who fail to comply with the disclosure regime, namely, that they would not be able to repudiate liability in respect of that contract of insurance. This difficult matter encompasses the area of contract law, which has international dimensions. It is not clear that such an amendment could apply.
An Irish consumer who opts to purchase an insurance policy from a company authorised in another member state may do so on the basis of accepting the contract law of that member state. In such a case this provision would not apply, could not be practical and could not be implemented in another country. Even if it did apply, presumably it would first be necessary to satisfy the court that a failure to comply had occurred. In addition, in every case where an insurance company was attempting for good reasons to repudiate a claim, such a provision would encourage the invention of accusationsof failure to comply. All of this would haveadverse consequences in terms of the costborne by ordinary policy holders. Consequently, for the reasons outlined, I cannot accept the amendment.
I move amendment No. 39:
In page 17, line 38, after "by" to insert "whom".
This is a technical amendment.
We shall now proceed to consider section 3 and the amendments thereto, consideration of which we postponed earlier. There has been a great deal of debate on these matters and, hopefully, we will be able to deal with them in an appropriate manner.
I move amendment No. 2:
In page 6, line 28, to delete paragraph (b) and substitute the following:
"(b) by the substitution of the following for the definition of ’client’:
' "client" means a person who proposes for insurance directly to an insurer or through an insurance intermediary or who requests an insurance intermediary or sales employee to arrange insurance on that person's behalf;',
(c) by the insertion of the following after the definition of ’the Companies Acts’:
' "connected person", in relation to an insurer, insurance intermediary or sales employee means:
(a) an undertaking in the same group as the insurer or insurance intermediary; or
(b) any person whose business or domestic relationship with the insurer, insurance intermediary or sales employee might be expected to give rise to a community of interest between them;’,”.
Under section 3, the definition of "client" has been deleted from the 1989 Act. Amendment No. 2 suggests that a client should be defined as "a person who proposes for insurance directly to an insurer or through an insurance intermediary or who requests an insurance intermediary or sales employee to arrange insurance on that person's behalf". In the 1989 Act a client was defined as a person who requests an insurance intermediary to carry out insurance on his behalf but this has been deleted under section 3. Amendment No. 2 is self-explanatory and there is no need to refer in detail to the Companies Act and the definition of "connected persons".
The purpose of this amendment is to reintroduce a definition of the term "client" into the definitions article which would apply to the Insurance Act, 1989, and to introduce from the draft disclosure regulations a definition of the term "connected person". A similar definition already exists in section 7 but with an important difference for the purposes of section 7, which concerns disclosure. It had been proposed to delete the definition from section 3 because it was felt that it was unnecessary and that it was better to avoid a proliferation of definitions of this word. However, unless the Deputies have a pressing reason for reinserting it, I propose that we adopt subsection (b) as it stands in the original Bill.
The introduction of the term "connected person" has the effect of transposing into the Bill definitions inserted in the disclosure regulations which will come into force after the enactment of the Bill. Let us consider the term "connected person" in light of the Deputies' desire to ensure that there is equivalence in the legislation. That term is important because the connected person scenario could be important for us in implementing disclosure in big monolithic institutions which have major resources at their disposal and many staff employed in different operations under various umbrellas and subsidiaries. I do not wish to amend the present wording.
There is no objection in principle to using these definitions in the Bill. However, as a practical issue it might be better to leave them in the regulations where they can be more easily amended should they prove not to address the issues of equivalence. In other words, my advice is that if we leave the definition in the regulations it is always possible to come back to amend them if the punitive effect is not achieved. If the definition is included in this legislation we would have to amend it and we could be a long time in the queue to do so. It would be possible for any Member or citizen to make a complaint to the Minister of the day and the regulations could be amended. My advice is that it is better to go down that route rather than accepting the amendment.
A sales employee is not included in the definition of "client".
A "connected person" will cover everybody. It is an all embracing term.
But "connected person" is not fully defined.
At the end of the day "connected person" refers to anybody connected with the product in some form or has something to so with persuading an individual to consider the product.
But it is not defined in the Bill.
I accept the Deputy's point and I am prepared to examine this before Report Stage even though my desire is to ensure that it is included in the regulations. I will re-examine this and I will also ask the parliamentary draftsman to review it.
Will the Minister of State come back to me on the definition of "connected person"?
I referred earlier to the problem I have with the introduction of regulations. I would prefer if this definition was included in legislation rather than regulations but given that the Minister of State said he would come back on this amendment on Report Stage, I will withdraw it with leave to introduce it on Report Stage.
I move amendment No. 3:
In page 8, between lines 10 and 11, to insert the following:
"(m) by the insertion of the following after the definition of ’the Minister’:
' "occupational pension scheme" has the same meaning as in the Pensions Act, 1990;',".
This is self-explanatory. After the definition of "the Minister" I seek to insert "if that occupational pension scheme has the same meaning as the Pensions Act, 1990." What is the Minister of State's response?
This amendment is to facilitate an amendment to include occupational pensions schemes in the disclosure regime. It is my intention following consultations with the Pensions Board to provide in the disclosure regulations that disclosure will be made to the trustees of such schemes having more than three members. I already referred to this on an earlier amendment. While I have sympathy with the amendment proposed, such provisions are best left to the regulations. I will give the Deputy a detailed opportunity to appraise these regulations.
We can appraise them all we like. If they are implemented on a specific date depending on——
1 January 2001.
If parliamentary questions to the Minister for Enterprise, Trade and Employment are not due to be taken in the House until March 2001 we will not have the opportunity to raise this during Question Time. We will not be able to tease out the issue on the Adjournment or through a Private Notice Question——
Or a Private Members' motion.
——or a Private Members' motion because we cannot question the Minister of State and elicit a response from him. This is the problem with regulations. It also highlights a problem with the procedures of the House, which is not specific to this legislation. As I withdrew an earlier amendment because the Minister of State said he would come back on it on Report Stage, I will withdraw this amendment, with leave to introduce it on Report Stage.
I will examine this again before Report Stage.
I move amendment No. 4:
In page 8, between lines 10 and 11, to insert the following:
"(m) by the insertion of the following after the definition of ’prescribe’:
' "pure protection product" means an insurance policy whose purpose and function is to provide payment of a specified amount on the happening of a specified event and where the insurance policy has no element of cash return or value other than on the happening of such specified event;',
(n) by the insertion of the following after the definition of ’the Regulations of 1989’:
' "sales employee" means, in the context of a supplier of insurance, any person employed by an insurer engaged in the negotiation and conclusion of insurance policies with clients and who receives sales remuneration in respect of his employment by the insurer;',".
The amendment defines "pure protection product" and "sales employee". It is self-explanatory and relates to the points we raised earlier. Will the Minister of State accept it?
It is important that pure protection products are for life protection only, that there is no saving element and that the amount of commission does not affect the value of the policy or the benefit paid to the consumer. It is important that the Minister of State should clarify the definitions of "pure protection product" and "sales employee".
If we go down this narrow road we will push the disclosure regulations into narrow elements of the insurance industry. It is important that we, as legislators, keep the parameters as broad as possible to ensure that all consumers have complete information on all products available to them. The purpose of the first amendment is to permit exclusion of pure protection products from the disclosure regime. The purpose of the second amendment is to insert a definition of "sales employee" into the Insurance Act, 1989, which has been copied from the disclosure regulations. This is one of a series of definitions from the disclosure regulations which are designed to provide equivalence of disclosure. It is more practical to leave this in the regulations. Regrettably, I do not accept the amendments.
How stands amendment No. 4?
I withdraw it with leave to reintroduce on Report Stage.
I move amendment No. 5:
In page 8, between lines 12 and 13, to insert the following subsection:
"(2) Section 2 of the Act of 1989 is hereby amended in subsection (3)-
(a) by the substitution of the following for paragraph (a):
'(a) A commission payment for the purpose of this Act, is a payment, including a commission or other remuneration, reward, service or benefit in kind, paid or provided by an insurer and/or all connected persons of that insurer to an insurance intermediary and/or all connected persons of that insurance intermediary in connection with an insurance policy sold to a client and, in the case of an insurance intermediary who is a connected person of the insurer, an amount in respect of a notional profit margin sufficient to achieve comparability in the total amount of commission payment in respect of that insurance policy with an insurance intermediary who is not a connected person of that insurer.’,
(b) by the insertion of the following paragraph after paragraph (b):
'(c) “sales remuneration” means in relation to a policy sold other than by an insurance intermediary, the cost of emoluments and other payments, benefits and services equivalent to commission, paid or provided by an insurer and/or all connected persons of that insurer to a sales employee of the insurer and/or all connected persons of that sales employee in connection with an insurance policy sold to a client and an amount in respect of a notional profit margin sufficient to achieve comparability in the total amount of sales remuneration in respect of that insurance policy with the commission which would have been payable in respect of that insurance policy to an insurance intermediary who is not a connected person of the insurer, excluding payment in respect of the cost of collecting premiums for industrial insurance business.’.”.
This relates to commission payment and sales remuneration. Both definitions are self-explanatory. Will the Minister of State comment on the amendment?
The effect of the amendment is to insert a definition into the Insurance Act, 1989, which again has been copied from the disclosure regulations. This is one of a series of definitions under disclosure regulations which are designed to provide equivalence of disclosure. In other words, when one is open and provides information, such information for regulatory purposes is covered by primary legislation. That distorts our efforts. It might be more practical to leave these definitions in the regulations. While I am confident that equivalence will be achieved, there is always the possibility that it will not. In that event it would be possible to react speedily so as to ensure equivalence if amendments had to be made to regulations rather than to primary legislation. For that reason it would be in the interests of good legislation and consumers not to pursue the amendment and to leave it to the regulations.
Throughout the debate, the Minister of State has referred to the need to introduce equivalence and we all agree. The only argument we have is that the Minister of State intends to introduce equivalence through regulation whereas we believe it should form the backbone of this legislation. Whether we refer to this or previous amendments there is a thread throughout the Minister of State's argument that he intends to introduce equivalence through regulation. If he is prepared to ensure there is a commitment to equivalence within the legislation much of this debate is unnecessary. We have not received that assurance that there will be a commitment to equivalence in the legislation, rather than in the regulations. It is fundamentally important that equivalence throughout the sector is copperfastened in this legislation. This would deal with many of the amendments we have put down.
I ask the Minister of State to look again at this Bill and come back with amendments on Report Stage to copperfasten the equivalence which we and he want to introduce. The only difference is that he wants to introduce it by regulation. If it is copperfastened in the legislation, we could withdraw some of our amendments.
The provisions of the Bill do not inform consumers of the true nature and purposes of commission payments or their cost components. If one is talking about transparency, commission payments underwrite the provision of independent advice and services which only an independent intermediary can deliver. The Irish consumer would object to paying up-front fees for advisory services. The intermediary's payment for the provision of advice or services is contingent on the consumer purchasing a product through the intermediary. The intermediary's commission necessarily reflects all overheads and professional time spent on clients, including those who do not purchase a product through him. It may reflect on the industry, but it is important to have a breakdown of fees.
I have listened to the Deputies with great interest. I appreciate their enthusiasm in ensuring we get this right in this primary legislation. However, from our experience over the years, once we pass the primary legislation, we are setting in stone the parameters within which we can draft regulations. As we draft those regulations in the future, somebody can say, "Hold it, that is not legal because your primary legislation states the parameters and now you are pushing the boat out". We must allow flexibility, not just for me as Minister of the day, but for my many successors who will be able to respond to the demands of the consumer and the problems in the industry - if there are problems. I hope this Bill will eliminate them but human nature, society and mankind being what it is, I am sure we will not eliminate everything. However, I am confident that if I accept this amendment and include it in primary legislation, I will tie the hands of future Ministers who will not have the flexibility required to ensure proper regulatory disclosure is implemented.
I accept the Minister of State's point and I agree. However, if he can come up with amendments on Report Stage which copperfasten the point we are making in relation to equivalence, we will withdraw these amendments. I ask him to give a commitment that he will look at the Bill again to see whether he can ensure equivalence is provided for in the legislation. He can then make his regulations. The principle of this Bill is the equality of treatment between brokers and the banks and large insurance companies. That equivalence is not in the legislation. That is our problem with this legislation. If the Minister of State provides for that in the legislation on Report Stage, we can withdraw some of these amendments. We want equivalence written into the legislation.
I am prepared to look at equivalence again. I will see whether it is possible to include a statement of principle on this issue in the Bill. I will take legal advice and consult the Attorney General and the parliamentary draftsman. We will consult our team in the office and we will work on it together. If we can do it, it will be done. We will come back to the Deputy.
I move amendment No. 40:
In page 20, before section 16, but in Part 3, to insert the following new section:
"16.-With effect from such date as may be prescribed by the Minister, the functions of the Central Bank under the Act of 1995 and this Act shall be transferred to such authority having functions as the single regulator of financial services as may be prescribed by the Minister.".
This amendment proposes that there should be a single regulatory authority. As the Minister is aware, the Attorney General recently chaired a report on the setting up of such an authority but there seems to be disagreement within Government on the acceptability of that, between the Tánaiste and the Minister for Finance. The amendment proposes the single regulatory authority would take control, as recommended by the Attorney General in relation to the Central Bank and this Bill.
I have listened with great interest to the Deputy. It is news to me that there is a dispute between the Tánaiste and the Minister for Finance. This amendment has the effect of empowering the Minister for Finance. Part III concerns the Investment Intermediaries Act, 1995, and the transfer of the Central Bank's functions to the single regulator. It is a matter of public record that the Tánaiste and the Minister for Finance are continuously discussing this matter. When those discussions are completed, final decisions will be made and legislation will be brought forward if necessary. I regret I cannot legislate for this situation in this Bill but I am confident that at the end of the day we will a single financial regulator.
Amendments Nos. 41 and 42 are related and may be discussed together by agreement.
I move amendment No. 41:
In page 20, paragraph (a), line 44, to delete “or for remuneration or reward”.
It is proposed to amend the definition of investment business firm by the insertion of "or for remuneration or reward" after "on a professional basis". The amendment would apply to existing and future investment intermediaries and not just to insurance intermediaries. The definition in the Investment Intermediaries Act, 1995, was taken from the investment services directive which requires only that an investment business service be provided on a professional basis. However, by virtue of receiving a remuneration or reward, an intermediary may not necessarily be deemed to be acting as an investment business firm. Acting on a professional basis goes further than that and would require that the activity be carried out on a recurring basis. It would suggest that a relationship exists between the intermediary and the customer.
The Central Bank received representations to the effect that the amendment to the original provisions contained in the Bill might have adverse effects for some international financial services domiciled special companies. Firms such as agency treasury centres, who are not investment business firms under the current definition, are required by the nature of their businesses to use swaps and derivatives for their own account to a significant degree. In certain types of derivative transactions, both parties to the contract receive payments. This payment could be considered to be a remuneration or reward. Such entities would be classified as investment business firms if the amendment proposed is proceeded with. Thus, a firm considered to be dealing on its own account for remuneration or reward would be subject to authorisation and ongoing supervision under the Investment Intermediaries Act, 1995. Failure to comply could lead to criminal sanctions against such bodies. On the basis of that information and the advice to available to us, I would be grateful if the committee could agree to amendments Nos. 41 and 42.
I move amendment No. 42:
In page 21, lines 8 to 10, to delete paragraph (b).
I move amendment No. 43:
In page 21, paragraph (d), line 18, after “client” to insert “of an investment business firm or”.
This amendment arises from the need to remove any doubt that "investor" also includes a client of an investment business firm.
Amendments Nos. 44 and 45 are consequential on amendment No. 54 and all may be discussed together by agreement.
I move amendment No. 44:
In page 21, paragraph (e), line 23, to delete “Insurance Act, 1989;’,” and substitute the following:
"Insurance Act, 1989;
'life assurance intermediary' means a person who acts as an insurance intermediary in respect of life assurance;',".
Amendments Nos. 44 and 45 distinguish between life and non-life intermediaries, thus permitting the proposed amendment to section 22, which provides that non-life intermediaries may be classified as restricted activity investment product intermediaries, popularly known as RAIPIs. Amendment No. 54, which amends section 22, has the effect of providing that non-life intermediaries will be treated as investment product intermediaries, that is, RAIPIs, although they handle cash. It is considered reasonable, because of the amount of cash which they handle is small and the consumer is usually covered by virtue of acceptance of their proposal for insurance, rather than by virtue of receipt of payment. By virtue of being so classified, these intermediaries will be deemed authorised and do not have to fulfil capital adequacy requirements. This will be subject to the normal supervisory regime.
I move amendment No. 45:
In page 21, paragraph (g), line 30, to delete “Insurance Act, 1989;’,” and substitute the following:
"Insurance Act, 1989;
'non-life insurance intermediary' means a person who acts as an insurance intermediary in respect of non-life insurance;',".
Section 17 proposes to amend section 9(2) of the Investment Intermediaries Act, 1995. Section 9(1) of the Act makes it an offence for a person operating in the State to act as an investment business firm without having the appropriate authorisation. The Act does not provide a definition for operating in the State, but section 9(2) of the Act gives guidance as to when a person is deemed to be not operating in the State. Some foreign entities challenged by the Central Bank on grounds of providing investment business services on an unauthorised basis have sought to justify their activities by stating that they did not require authorisation under the terms of section 9(2). We are anxious to assist the Central Bank in the course of amending the Investment Intermediaries Act by means of the Bill and I had hoped that the potential loophole could be closed off by defining what was meant by "operating in the State".
Following publication of the Bill, representations were received in the Department and in the Central Bank about section 17 from both domestic and foreign parties. Bona fide concerns were expressed that the amendment could change fundamentally the way that non-EEA investment firms did business with Irish corporations and Government entities. At present, foreign firms can conduct legitimate cross-border investment business with Irish customers and counterparts without being subject to Irish authorisation requirements. Section 9(2) enables non-EEA banks and investment firms to transact cross-border investment business, including sophisticated financial derivatives, with Irish corporations and Government agencies and bodies. It gives such Irish entities access to the full range of investment instruments on a worldwide basis. The scope of the Investment Intermediaries Act goes beyond that of the "passportable" activities listed in the annexe to the investment services directive. Section 9(2) allows EEA domiciled investment business firms to provide all services under the Act to Irish corporations and Government agencies without the requirement to seek authorisation in Ireland.
If the proposal in section 17 were proceeded with, it could restrict the number of international counter parties and investment service providers with which Irish residents could do business. For example, an Irish registered technology company or a non-financial State sector company could not appoint a US investment firm or investment bank to advise them or to place or underwrite its securities in the United States unless the US firm was authorised in Ireland. This could have wide-ranging implications for the disposal of assets by any firm, including State or other Irish-owned firms wishing to go public.
It would appear, based on the representations and advice I have received, that the benefits accruing from the amendment proposed to section 17 would be outweighed significantly by its downside. Accordingly, I have decided that it would be inappropriate to proceed with section 17 and I propose that this section be deleted from the Bill. Our officials have consulted with their counterparts in the Department of Finance on this matter, and I understand the Minister for Finance may now consider addressing the original difficulty by means of a new provision in legislation within the remit of his Department. It would foolish of us to continue to include a section which would create a serious impediment for the maximisation of the capital value of Irish business or the use of various international financial instruments which could make a huge contribution to the development of our economy.
I move amendment No. 46:
In page 23, before section 19, to insert the following new section:
"19.-Section 16 of the Act of 1995 is hereby amended in subsection (1) by the substitution of the following paragraph for paragraph (k):
'(k) a director, manager or qualifying shareholder of a person who is an authorised investment business firm or is deemed by virtue of section 26 or 63 of this Act to be such a firm no longer satisfies the supervisory authority as to the matters specified in paragraphs (d) and (e) of section 10(5) of this Act,’.”.
This amendment encompasses the original paragraph (k) of 1995 Act while providing that its provisions apply where the supervisory authority is not satisfied as to the probity and competence of a director or manager or as to the suitability of a qualifying shareholder of the investment business firm, investment product intermediary or a certified person. Consequently, I would be grateful if the amendment were accepted.
I move amendment No. 47:
In page 23, before section 20, to insert the following new section:
"20.-Section 21 of the Act of 1995 is hereby amended by the insertion in subsection (2) after paragraph (b) of the following:
'(bb) has failed to provide to the supervisory authority within such reasonable period as may be specified by it such information as it may reasonably request for the purpose of its functions under section 20(1) of this Act, or’.”.
This amendment provides that, where an investment business firm fails to give information sought by the Central Bank within a reasonable period as specified by the bank, the bank may, by direction, impose punitive measures. This will apply to all investment business firms, not only insurance intermediaries. The Central Bank has, in some cases, experienced serious difficulties in getting responses from some intermediaries and we need to plug that loophole. I would be grateful if the amendment were accepted.
What is the extent of this loophole?
The Central Bank, under certain legislation which has been passed over the years, both on the commerce side and the financial services side through the Department of Finance, would request information of companies and they would be slow or negative in providing it. We need to ensure there is a legal enabling device available to the Central Bank to obtain the information so required and, if the information is not forthcoming, that it will be able to impose measures on these people.
What measures, if any, might be imposed?
It may be that their licences may be recommended for revocation or such matters.
Would public notice to that effect be given?
As far as I know, under the Acts, notice must be published in certain circumstances but I would not be sure it must happen in all circumstances. The Deputy will understand that, in many of these cases, companies may go to court to prevent the Central Bank or another State agency from obtaining information and they may decide on the steps of the court to provide the information. There may be a valley period of 18 months or two years between the demand and the conclusion. The Central Bank had a difficulty recently obtaining information in a certain case which was the subject of a court action and which is public knowledge.
Will there be notice of intention to seek this information so that the public is fully aware that there is a difficulty? There is no one better to probe someone than a client who would ask if there was a reason the company was not complying.
The difficulty is that, if that were to be interpreted in totality and notice had to be published that the bank had an intention, it would alert the company as to what the bank was going to do and it could affect the value or performance of the company. If anything went wrong, it would have recompense available to it. We would have to be careful about that.
I move amendment No. 48:
In page 23, line 24, after "investment business firm" to insert ", tied insurance agent".
Section 2 of the Investment Intermediaries Act, 1995, defines "investment business firm" as meaning, inter alia, any person other than a member firm within the meaning of the Stock Exchange Act, 1995, who provides one or more investment business services to third parties on a professional basis. If the service is carried out on the sole and unconditional responsibility of an investment business firm or insurance undertaking, that activity shall be regarded as the activity of the investment business firm or insurance undertaking. If the insurance undertaking takes full and unconditional responsibility for its tied agents, the tied agents will not come within the definition of investment business firm and would not be regulated by the supervisory authority.
The purpose of this amendment is to ensure that all insurance tied agents, including those for whom an undertaking agrees to take full and unconditional responsibility, come within the definition of investment product intermediary and are required to comply with the legislative obligations placed on investment product intermediaries. This means that they will be required to issue receipts and that they will be included in the public registers maintained by the Central Bank and the insurance companies. All tied agents will still be required to be members of an investor compensation scheme, but there is provision in the investor compensation legislation to impose a zero contribution on members with a zero exposure for their clients to financial losses. It is fair and equitable in its effect.
I move amendment No. 49:
In page 24, line 42, after "1998" to insert ", but subsections (2) and (3) thereof do not apply to insurance intermediaries if and in so far as their business relates to reinsurance or advice regarding reinsurance policies".
This amendment is necessary as it is not intended that the provisions of section 25A subsections (2), (3), (4) and (5) should apply to reinsurance intermediaries as consumer protection is not an issue in reinsurance activity. It only refers to corporate cover being available to the large companies. It does not apply to consumers, so it would be irrelevant here. We want to ensure the legislation does not impinge on an area where it should not.
I move amendment No. 50:
In page 25, lines 8 to 10, to delete "on the stationery and business forms and in the advertisements of insurance agents".
The purpose of this amendment is to enable the supervisory authority and intermediaries to keep abreast of ongoing progress in e-commerce. This matter was raised earlier by a number of Deputies, including Deputies Boylan and Ardagh. The supervisory authority will make a value judgment from time to time on the most appropriate method by which insurance agents should furnish relevant information to clients and advise agents accordingly by means of a code of conduct or other instructions. This amendment will facilitate a move away from a strictly paper based system which should be warranted by developments in the Internet sales of insurance and in modern technological communications.
That is a welcome amendment.
I move amendment No. 51:
In page 25, line 46, to delete "an" and substitute "any".
This is a technical amendment arising from a printing error. I regret it but hope the Committee accepts it.
I move amendment No. 52:
In page 26, lines 3 and 4, to delete "an insurance agent or a tied insurance agent" and substitute "an insurance undertaking, its insurance agent or its tied insurance agent".
The purpose of this amendment is to include the insurance undertaking itself within the category protected from bearing responsibility for false statements furnished by a proposal of insurance in an insurance proposal or any information withheld by the proposer. The 1989 Act already excludes agents and tied agents from responsibility where the proposer supplies misleading information or withholds information. There is no reason insurance undertakings or their agents or otherwise should be left exposed by this practice. In other words, there has to be a responsibility on the client that if he or she purchases a product he or she must give the whole truth and nothing but to the person they are dealing with and that if something is discovered six months or a year later, they are liable for that and not the person working either on behalf of the company or the company doing the business.
In relation to the provisions for brokers' agents and tied agents, I came across the issue of collection of policies some time ago. It probably would not be a big issue here but in rural areas tied agents collect money from door to door from policyholders.
Is the Deputy talking about ordinary industrial policies?
No, mainly life or personal insurance or educational programmes. This section refers to the powers of the insurance intermediaries and in many cases it is an intermediary who collects the money for the insurance company or the tied agent. I have come across a case where, over a period of 20 to 30 years, this intermediary collected money from individuals on an annual or monthly basis. The intermediary decided not to continue with the business and the individuals involved were waiting for an intermediary to call to pay over the money due, but nobody called. They received letters from the insurance company stating there was so much due, but they understood the intermediary would call to collect the money. Eventually, when the individuals found out this person was no longer acting on behalf of the company, they contacted the company, which told them the policy had lapsed because they had not made the payments.
Nobody contacted the client?
No, the client eventually contacted the company and was told that the policy had lapsed because the payments were not made. Is there an onus on either the intermediary or the company to ensure that where a certain procedure has been used in the past, and in order that people can keep their policies up to date, a company representative should call prior to the policy lapsing to inform clients of the new system? This is a dying practice but it still exists in some parts of the country, particularly in rural areas where such savings schemes have gone on for a long time. Does this legislation ensure the policyholder does not lose out in this type of activity?
I have come across something similar myself. Is it not now practice, whether by regulation or otherwise, for both the broker and the insurance company to notify a policyholder on a yearly basis regarding their policies? Is that not the case?
I will come back to the Chair on that.
I support Deputy Naughten's relevant point. This practice might not be as prevalent today as it was years ago but is still quite active. I have known of cases where policies lapsed because the salesman ceased to call but people took it that he would return eventually, leaving their savings to one side for his call. Another important issue is the renewal notice, which is sent out once to notify policyholders that it is due. People often leave this to one side. There should be a final warning notice if it has not come in, but generally this does not happen and policies have lapsed as a result of people not having paid their premium, though they may intend to continue with it. Various household developments and pressures mean it is forgotten. This is a grey area. We heard recently about all the money lying unclaimed in banks and I am sure it is the same with these policies lying dormant.
It is £1.7 billion.
So there is an area to be examined and where people should be protected, particularly in rural areas where people are not as up to speed as those in urban areas.
I am not too sure about that.
I support that important point. There should be an obligation on the insurance company to have direct contact with the customer, regardless of the sales process. Many different people can change companies from time to time and there should be an obligation on the insurance company to direct invoices, outstanding premia and renewal notices to customers and to assure them of their investments. The day of people not calling and uncertainty as to policies should be gone.
My opinion on what has been said is that in Deputy Naughten's case, the policyholders were foolish and the company unfair. The intermediary opted out and the policyholders should have been alerted, when they got their first letter from the company, that something serious was amiss as there was nobody to collect the money. They should have followed that up. On the other hand, the company was unfair to penalise them and should have sent somebody to meet them and inform them that they owed arrears and that it would be prepared to continue the policy if they paid the arrears by a particular date.
We intend to address this issue, though not in perhaps as detailed a way as Deputies wish. Section 7 (d) on page 13 states that in the case of a policy of insurance which requires a surrender of protected maturity value, the insurer shall, at such time or times, and in such form or manner as the Minister prescribes, provide the client with a written statement. Later in the Bill we discuss renewal notices, where a similar situation arises and we can discuss this again when we reach them. I am prepared to look at this. In section 7 we have amended the Bill to stipulate that in this section renewal notice means a notice in writing issued by an insurer or an insurance intermediary which requests a client to renew the policy concerned in accordance with the terms and conditions of the policy, of any endorsements to the policy and of the notice.
I am prepared to look at this to see if we can frame a regulation which will make it mandatory on the company to give proper and adequate notice. I would like to make it mandatory on the company to communicate to the client that intermediary X has withdrawn from service, retired, died or whatever else, and as a result there is no one to collect the policy and to outline the options open to the client. Companies should make it as easy as possible for clients to get back on a repayment track without interfering with the value of the policy or its maturity date.
That is a valid point.
I will see what I can do about this matter.
I thank the Minister of State but the importance of the point I am trying to make is that traditionally the policy was collected door to door.
I appreciate that and in rural areas there is a strong personal communication.
To communicate by any other method, subsequent to the retirement, death or withdrawal of the intermediary, is not sufficient because many clients would not deal with an insurance company other than by the door to door method. Some of these people have poor literacy levels. Renewal notices or insurance policies can appear to be written in double Dutch, this is particularly the case for people with poor literacy skills. We have a serious problem in that 25% of the adult population has poor literacy skills. It is not sufficient that where a collection was handled door to door an insurance company would write to a client. It should send a representative to explain the position to individual clients.
A representative who would have documentation giving the options available and agreeing an option?
We will look at that regulation. It is a big task but I will do my best.
I move amendment No. 53:
In page 27, to delete line 47 and in page 28, to delete lines 1 and 2 and substitute the following:
"(iv) by the substitution of the following for clause (I):
'(I) taking non-negotiable cheques or similar instruments made out to one of the undertakings mentioned at subparagraphs (i) to (vii) of this subsection or taking cash not exceeding an amount of £2,500 in any one year in respect of all clients, for the purposes of the receipt and transmission of orders, and'.".
This amendment concerns cash and non-cash handlers. An IPI is defined under section 22, amending section 26 of the 1995 Act. In summary, IPIs are not allowed to handle cash in respect of designated investment instruments, including insurance policies. On the other hand, an IPI as defined under section 25 of the 1995 Act is authorised to handle cash resulting from his or her dealings in investments or products of the type specified under that Act. The majority of insurance intermediaries are composite dealing, for example, with life and non-life insurance policies. Most brokers are of RAIPI status in respect of life business and IPI status in respect of non-life business. It is not necessary for a RAIPI to apply for authorisation under the 1995 Act provided he or she confines themselves to the designated restricted activities. However, if he or she proposes to conduct more extensive business he or she must apply for authorisation. A considerable number of IPI brokers deal only in life business and will not opt for RAIPI status.
Section 8 of the Bill proposes to repeal Part IV of the 1989 Act. The provision of section 48 accounts is contained in Part IV of the 1989 Act and, accordingly, such accounts will cease to operate. The abolition of section 48 accounts will give banks an advantage over independent insurance intermediaries and will reduce the independent advice available to consumers. What is proposed is that RAIPI brokers be deemed to be authorised to handle cash up to £2,500 for all transactions within a given year. This will provide brokers with the flexibility to deal with the exceptional circumstances where they must be in a position to accept small amounts of cash from the customer without having to refer them to a bank. Given the small monetary limit the consumer is protected.
If the amendment is not accepted the banking industry will automatically benefit from the insurance brokers' ability to handle small amounts of cash to the detriment of the interests of consumers. The undertaking from banks which was suggested by the Minister of State in his speech not to abuse their position is not compelling enough to force compliance by the banks. Furthermore, the ability of RAIPI brokers to handle small amounts of cash amounting to no more than £2,500 per annum will allow them to deal with exceptional circumstances where they need to handle clients' funds without having to refer those clients to their competitors - the banks. This comes back to the argument we made on the last section to allow flexibility for consumers to pay by their chosen method.
If this amendment is not accepted the banking industry will benefit from the insurance brokers' inability to handle small amounts of cash to the detriment of consumers' interests. During the week it emerged that 30% of people do not have bank accounts. The undertaking from banks not to abuse their position suggested by the Minister of State is not sufficiently compelling to force compliance by the banks. The definition of cash and non-cash handlers is over-simplified and does not give enough scope to deal with exceptions. There should be provision for brokers to handle a certain amount of cash.
Some brokers have different forms of stationery and handle both ends of the business. One broker can have two different types of invoices and can handle cash for one kind of transaction but not for another kind of transaction. This is an important amendment.
We must also remember that 40% of males and 48% of females have no life cover. The average life cover is £50,000 which is totally inadequate. In addition, only 52% of employees, 27% of self-employed workers and 12% of those is the agriculture sector have pensions. If we want to encourage people into the business it is important that cash transactions through the broker system should be incorporated. Despite the economic boom, 40% of males and 48% of females have no life cover.
This amendments seeks to provide that restricted activity investment product intermediaries who are deemed authorised by virtue of the fact that they are not cash handlers, may handle cash not exceeding £2,500. I have proposed an amendment which would permit an investment product intermediary selling non-life insurance to handle cash while still being regarded as restricted activity investment produce intermediaries. There are dangers in extending this concession to allow cash handling in respect of any other business. It would create confusion in the mind of the consumer, thus exposing them to the risk of fraud. Moreover, the amendment as proposed would be very difficult police. How would we police it? Is it £2,500 per annum, per consumer client or per policy?
I appreciate that those intermediaries who handle cash in respect of life assurance will, therefore, have to satisfy the Central Bank as to their capital adequacy. I have had assurances from the Central Bank that it will have regard to the size of the business of any individual intermediary when considering capital adequacy, consistent with consumer protection considerations. This goes back to the point made by Deputy Naughten concerning my Second Stage speech.
I do not propose to accept this amendment. However, conscious of the issues raised by Deputies I will consider whether it might be possible to accommodate them by bringing forward an amendment on Report Stage. I am prepared to look at this issue in detail before Report Stage to see if there is anything I can do. I appreciate the point being made.
That is welcome.
Will the Minister of State consider looking at the collection of premiums which are outstanding, billed by the company or undertaken in respect of brokers' business in respect of cash collection? I hope he will look at it because it is important. The fact that people cannot take cash across the counter could result in many cancelled policies.
We amended an earlier provision to allow certain aspects of that position to prevail. We do not want to completely open the doors or we will have a serious problem trying to police it, but I will look at it again.
But £2,500 is not a huge sum of money.
It depends on what it is for - we will have to look at it.
A sum of £2,500 is not much to the people of Ballymote.
We withdraw the amendment, but may again table it on Report Stage.
Amendment No. 54 has already been discussed with amendment No. 44.
I move amendment No. 54:
In page 28, paragraph (a)(vi), line 7, after “tied insurance agent” to insert “or a non-life insurance intermediary”.
Deputy Perry proposed an amendment in relation to this amendment and I give notice that such an amendment may be tabled on Report Stage.
Amendment No. 55 is consequential on amendments Nos. 56 and 57, and amendments Nos. 55, 56 and 57 may be taken together by agreement.
I move amendment No. 55:
In page 28, line 23, to delete "and".
Amendment No. 55 is necessary to facilitate amendment No. 56, that is the addition of a new subsection (c).
Amendment No. 56 requires insurance intermediaries, who in accordance with the terms of the Bill will be deemed authorised, to furnish information to the Central Bank within three months of the coming into force of the provisions of the Bill. If they do not do this their status as deemed authorised will lapse and they will have to cease to be insurance intermediaries until formally approved by the Central Bank. The information sought will cover issues such as name and address of company, the identity of directors and managers, the nature of the company's business, its status and its product producers. The bank has experienced some difficulties in the past in getting such information from a limited number of intermediaries who were deemed authorised, something referred to earlier in the discussion.
The intention of amendment No. 57 is to exclude firms under the control of existing restricted activity investment product intermediaries or their owners from being deemed authorised where they have systematically failed to co-operate with the supervisory authority in its supervision of restricted activity investment product intermediaries. It will not preclude them from applying for authorisation in the normal course. In other words, if they are debarred by virtue of non-co-operation, they can formally re-apply and if they meet the criteria they can be accepted.
Before moving on I understand the committee agreed to break at 1.30 p.m. However, as we have made significant progress, I propose we continue until we conclude our consideration. Is that agreed? Agreed.
Amendment No. 56 has already been discussed with amendment No. 55.
I move amendment No. 56:
In page 28, line 28, to delete "Act and not re-instated.', and " and substitute the following:
"Act and not re-instated, and
(c) the restricted activity investment product intermediary furnishes to the supervisory authority not later than 3 months from the commencement of this section, in such form as the authority may specify, such information as it may reasonably require, for the purposes of its functions under this section, in relation to such matters as the authority may specify, and”.
I move amendment No. 57:
In page 28, between lines 28 and 29, to insert the following:
"(d) no restricted activity investment product intermediary, nor a related undertaking of the restricted activity investment product intermediary, nor an officer of the related restricted activity investment product intermediary or of the related undertaking of the restricted activity investment product intermediary has failed to comply with a condition, requirement or direction, imposed by the supervisory authority under this Act, where such failure is, in the opinion of the supervisory authority, prejudicial to the proper and orderly regulation and supervision of investment business firms or the protection of investors or both.’,
I move amendment No. 58:
In page 29, lines 13 and 14, to delete "or in acting as a deposit agent, a deposit broker or as an insurance intermediary" and substitute "or in acting as a deposit agent or as a deposit broker".
Section 20, as amended, provides that an investment product intermediary means an investment business firm, a tied agent or a solicitor who provides a service for the reception and transmission of investment instruments which, among others, includes insurance policies. Accordingly, the reference to insurance intermediary in this section is superfluous since insurance policies are included in the definition of investment instruments. The reference to deposit agent and deposit broker is necessary as deposits are not included in the definition of investment instruments.
I move amendment No. 59:
In page 29, to delete lines 23 to 26 and substitute the following:
"(b) is of good character and-
(i) otherwise complies with this Act, and
(ii) where the product producer is an insurance undertaking, complies with the Insurance Acts.',".
This amendment is necessary to avoid placing a requirement on product producers who are not themselves insurance undertakings to make inquiries to ensure that an investment product intermediary who is also an insurance intermediary complies with the Insurance Acts. As section 24 is currently drafted, subsection (28)(b)(i) would require a credit undertaking or a pure investment product to satisfy itself that an investment product intermediary whom it wished to appoint was in compliance with the Insurance Acts where that intermediary was also acting as an insurance intermediary. This was not the original intention of the provision. The amended text means that only where the product producer is an insurance undertaking must it satisfy itself as to the compliance of the intermediary with the Insurance Acts.
I move amendment No. 60:
In page 29, lines 28 and 29, to delete paragraph (b) and substitute the following:
"(b) by the substitution of the following for subsection (2):
'(2) A product producer may, for the purposes of subsection (1) of this section, assume that an investment product intermediary authorised under section 10 or 13 of this Act as an investment business firm or authorised by a competent authority in another Member State to perform functions corresponding to those of an investment product intermediary is in compliance with the Insurance Acts.',
(c) in subsection (5)-
(i) by the insertion after 'belonging to the client' of 'or pay any commission, fee or other reward to the investment business firm', and
(ii) by the insertion of the following before paragraph (a):
'(aa) which, to the best of the product producer’s knowledge and belief, complies with this Act and, if the investment business firm is an insurance intermediary, with the Insurance Acts,’.”.
This amendment encompasses the original amendment to section 24(b) of the Bill while adding that when the investment product intermediary is authorised as an insurance intermediary, the product producer may assume that he or she is also in compliance with the Insurance Acts. This is a reasonable assumption to make provided the intermediary has received an authorisation from the supervisory authority to act as an investment product intermediary for insurance purposes.
Amendment No. 65 is related to amendment No. 61 and both amendments may be taken together by agreement.
I move amendment No. 61:
In page 30, before section 27, to insert the following new section:
"27.-Section 31 of the Act of 1995 is hereby amended in subsection (6) (inserted by section 61 of the Investor Compensation Act, 1998)-
(a) in paragraph (a), by the substitution for ’newspapers circulating in the State’ of ’national newspapers’, and
(b) in paragraph (b), by the substitution for ’newspapers circulating in the State’ of ’national newspapers within 28 days of having informed the investment product intermediary in writing of the discontinuance of the appointment’.”.
The first part of the amendment is necessary because continuance notices have been published on occasion in an unsatisfactory manner, as was referred to earlier by Deputy Boylan and others. They have appeared in a wide variety of newspapers, such as free sheets and provincial newspapers outside the geographical range of an intermediary's clients. While such an arrangement complies with the letter of the law, it serves to circumvent the original intention. This amendment will ensure that notices are published where they can reasonably be expected to be seen by all clients of an intermediary.
The second part of the amendment is intended to provide a given time within which a discontinuance notice must be published. Where the investment intermediary fails to publish this discontinuance notice, the product producer which has discontinued the appointment must publish a notice within 28 days of having informed the intermediary that the appointment was being discontinued. The insertion of a prescribed time in the legislation will enable the supervisory authority to take enforcement action in the event of notification obligations not being complied with.
This will be very well received by the public.
I will be moving amendment No. 65 as there is some concern among brokers that the requirement to publish a notice of discontinuance where a product producer terminates an intermediary's appointment may lead to hardship. This is the most common reason for the termination of non-production of business. Brokers believe that publication of the notice may lead to customers erroneously concluding wrongdoing on the part of the intermediary. This error may lead to the loss of business.
A supervisory authority should be given power to dispense with publication where the intermediary can show good cause. While fully accepting the Minister's point, and returning to the argument I made earlier about intermediaries, where the intermediary or broker can satisfy the supervisory authority that they have contacted all those who have a policy, there may be no need for a notice in newspapers where no wrongdoing is involved. The problem is that when an intermediary publishes the fact that it is no longer an intermediary for a particular insurance company, people may automatically assume some wrongdoing. This is a complex issue which the Minister might look at it again to try to get the balance right for Report Stage. The broker should not be seen to be involved in wrongdoing just because this is printed in the local newspapers. Everyone is aware of the implications for anyone whose name appears in the local newspaper.
I agree with the Minister that a notification should be advertised in the appropriate catchment area where it can be seen by customers. Senator Naughten stated that one may leave a company for a number of reasons and the holding company might decide to place an advertisement in the newspaper stating that the agent is no longer involved with the company. If the departure is due to dishonest dealing, this should be dealt with by the regulatory body by way of ministerial order. The type of discontinuance notice should be specified. The Minister should regulate the format of the notification being published. Some people may leave a company under exceptional circumstances due to dishonest dealing but others may leave a company due to a good business opportunity.
That is an important point. There should be notification of who is replacing the person and that the person leaving the company is going on to greener pastures. This is important information.
The amendment seeks to provide that where a product producer discontinues its appointment of an investment product intermediary, the rule that this fact should be publicised may be dispensed with if the intermediary has satisfied the Central Bank that it is detrimental to his business or undermines the confidence of his clients. The rule of publication is an important protection for consumers by keeping them informed of the producers from whom an intermediary holds an appointment. The proposed grounds on which the supervisory authority might consider dispensing with the notice are also inappropriate. While I cannot accept the amendment as it is laid down, I appreciate the fairness with which the Deputy has made the case to ensure that equity prevails and that due respect is maintained for the client who is terminating services, be it for legitimate, illegitimate or retirement reasons. I will look at this aspect to see if there is anything I can do. It would be very difficult to deal with this legally. However, I will see what I can do to have it classified. Deputy Boylan's point about naming a successor would be advantageous for everyone and give reassurance to the product producer that the continuity of service is available. I will consider the issue for Report Stage.
I move amendment No. 62:
In page 30, before section 27, to insert the following new section:
"27.-Section 37 of the Act of 1995 is hereby repealed.".
I oppose this section which relates to tour operators and the issue we have been debating all morning in relation to equality of treatment. Why is there one rule for brokers and another rule for tour operators? I have been informed that commission paid to tour operators can amount to up to 35% in relation to travel whereas the commission paid to brokers who provide the same insurance is a lot less. Brokers provide travel insurance on an annual basis whereas tour operators provide it on the basis of the route they are taking. Why is there not equality of treatment in this regard?
By opposing the section the Deputy is seeking to repeal section 37 of the Act of 1995 which provides for a code of conduct for relevant business firms.
I am opposing section 27 which gives special recognition to tour operators and travel agents in relation to travel insurance. This is not being provided to brokers, therefore there is not equality of treatment between both. I am opposing the section so that there is equality of treatment between both agents who sell the same insurance.
I get the point the Deputy is making and I have a little knowledge of that industry. Section 31A (1) provides that the Act shall not apply to travel agents and tour operators licensed under the Transport (Tour Operators and Travel Agents) Act, 1982, in so far as they are engaged in the placing of travel insurance or touring assistance contracts as part of, or in conjunction with, an overseas travel contract. This provision is required since travel agents and tour operators are regulated by the Minister for Public Enterprise. They are already required to hold an indemnity bond which covers their travel insurance activities. When I was Minister of State at the Department of Transport, Energy and Communications I had responsibility for the travel industry and dealt with many issues.
The proposed amendment would put travel agents under the Investment Intermediaries Act. They would presumably be regarded as investment product intermediaries and would be deemed authorised. The main effect of this would require that they could meet their financial obligations to their clients as far as insurance is concerned. This is unnecessary because they are already subject to the control of the Minister for Public Enterprise; in particular they hold indemnity bonds which encompass travel insurance. The issue of disclosure is not addressed in the section. While it is not my intention to address the issue of tour operators and travel agents in the disclosure requirements in the first phase, I will not rule it out when we devise disclosure rules for non-life.
This goes back to the argument I was making. Why are two bodies which provide the same insurance being treated differently?
The Deputy has tabled an amendment seeking to exclude pure protection. Travel insurance is pure protection. It protects a client for the length of their travel from destination A to destination B and back to destination A. I do not see how this could be the case if I were to agree to exclude pure protection. However, this is a slightly grey area at which I will look again. I would not want consumers to be ripped off by paying travel insurance which may carry huge commission. The risks are high in the totality of global corporate cover. This is something I will look at again before Report Stage.
Has the Transport (Tour Operators and Travel Agents) Act, 1982, been updated? The Minister of State has indicated that tour operators and oversees travel contracts are covered by section 2 of that Act.
That is correct. Travel agents already are subject to a solvency requirement. This does not exclude them from the disclosure regime. We may be able to include them. I will look at this again.
Eighteen years is quite a long time. Has that legislation been updated?
Yes. Travel agents and tour operators are subject to the Transport (Tour Operators and Travel Agents) Act, 1982, and the Package Holiday and Travel Trade Act, 1995. Under the 1995 Act the travel agent or tour operator, where the consumer is required to take out insurance, must inform him or her of the minimum level of cover necessary. However, there is no legislative requirement on the consumer to take out any specified form of insurance. It is completely optional.
When a tour operator is doing joint business as a broker, is the tour operator obliged to indicate the charges?
If a customer purchases a package holiday from a tour operator he is given a document showing the cost of the flight and travel insurance. If the customer does not ask questions he pays everything but if he is otherwise insured he should not pay for insurance a second time. The option is his.
A broker must declare his commission but a tour operator need not.
This goes back to the pure protection point.
The Minister of State has already made the argument in relation to pure protection.
Deputy Perry wanted out and now he wants in.
It is the job of the Opposition to question legislation and to propose amendments.
It is the Minister of State's job to defend his policy and the legislation he has brought forward. He has already made an argument regarding pure protection and now he makes an alternative argument. Does he not agree that if disclosure is required in relation to pure protection in one element of the industry, it should be required in another element which provides the same service? Both should be treated equally. One person provides travel insurance as a broker and the other as a tour operator yet one is required to declare his commission and the other is not.
The cover would be different.
Not necessarily. The only difference would be that it could be an annual cover.
In the first case it would be. A customer would pay a very high premium if it were not.
Why does one person have to declare his commission while another who is providing the same service does not?
The Deputy makes a good point but his point relates to disclosure. This section only deals with the Investment Intermediaries Act, 1995, and not with disclosure. This section declares that tour operators are not covered by the Investment Intermediaries Act, 1995. They are not deemed to be invesment intermediaries. Otherwise they would be subject to all kinds of involvement with the Central Bank and various supervisory regulators.
Would that not include disclosure?
Not necessarily. There is a grey area here and I am prepared to look at it again. Disclosure is covered by the insurance Acts and not by the travel Acts.
I move amendment No. 63:
In page 31, before section 29, to insert the following new section:
"29.-Section 65 of the Act of 1995 is hereby amended in subsection (2)(g) by the insertion after ’by’ of ’whom’.”.
This is a technical amendment necessitated by the omission of the word "whom" in the original text of the Act. A similar amendment was made to section 10, page 17. There was an original error in the Investment Intermediaries Act when it was copied into the Insurance Bill.
I move amendment No. 64:
In page 31, before Schedule 1, to insert the following new section:
Amendment of Central Bank Act, 1989
30. Section 16 of the Central Bank Act, 1989, is hereby amended in subsection (2)-
(a) in paragraph (m) (inserted by section 49 of the Act of 1995) by the deletion of ’in respect of certified persons’, and
(b) by the insertion before paragraph (v) of the following paragraph:
'(av) made to a product producer (within the meaning of the Investment Intermediaries Act, 1995) in respect of the investment business services or invesment advice provided by a restricted activity investment product intermediary (within the meaning aforesaid) who holds an appointment in writing from the producer pursuant to section 27 of that Act.’.”.
The first provision will enable the Central Bank to make inquiries of accountancy bodies about the investment business activities of any of their members. The present position restricts inquiries to certified, that is authorised, persons. This amendment will permit the Central Bank to discuss the activities of accountants who are engaging in invesment business activities without the necessary authorisation.
The second provision permits the supervisory authority to seek from the product producer information normally known to them by virtue of their position vis-à-vis an investment business firm and disclose that information to the Garda, notwithstanding normal confidentiality rules. The Central Bank has sought these amendments in the light of experience of attempting to prosecute some intermediaries and it needs an enabling device.
It is my intention to bring forward, on Report Stage, an amendment to section 37 of the Act of 1995 regarding the code of conduct. The matter is currently being discussed with the parliamentary draftsman and the Office of the Attorney General.