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Select Committee on Finance, Public Expenditure and Reform, and Taoiseach debate -
Wednesday, 11 May 2022

Insurance (Miscellaneous Provisions) Bill 2022: Committee Stage

I welcome the Minister of State at the Department of Finance, Deputy Sean Fleming, and his officials. To provide for the smooth running of the meeting, any member acting in substitution for another should inform the clerk now. Divisions will be taken as they arise, for which members must attend in person. Members attending this meeting in accordance with Standing Order 106(3) should be aware that, pursuant to that Standing Order, each member can move his or her amendment but cannot participate in voting on that amendment.

Is it best to come in by section regarding different questions I have on the legislation?

By section.

Section 1 agreed to.
Question proposed: "That section 2 stand part of the Bill."

I thank the Minister of State for coming before the committee for the second time today for this important legislation. It is my understanding that sections 2 and 3 relate to the deduction by insurers of Covid-19 related State supports for final business interruption insurance claim settlements. We are all quite aware of how difficult Covid-19 has been for businesses and the impact it has had. The fact that people had to use that business interruption insurance shows the impact it had. The Central Bank informed my party in written correspondence in May last year that more than €163 million had been paid out to in excess of 5,000 policyholders through settled claims and interim payments. Over the course of the pandemic, it became apparent that insurance companies were deducting the value of State supports provided to firms during the pandemic from the value of the business interruption payouts. That came as a major concern to businesses. The reality is many of the insurance companies thrived during the pandemic.

These payments were made to assist the businesses, not big insurance companies. I am seeking an update on this because this section deals with it. I also have a question on sections 3 and 4 relating to the database, but perhaps the Minister of State can give an update on this.

This is an important new section in the legislation regarding deducting the value of State supports. That issue became apparent as the Covid-19 situation emerged. There is a general misunderstanding among the public because many of the insurance companies had said they would not deduct any payments the State had made from any payments they would be making under business interruption policies. Many people felt that all that funding was going to come back to the State. However, what the companies that made those statements did not say is that the vast majority of them had no business interruption policies to start with. When they knew they had no business interruption policies, it was very easy to make a statement that they would not deduct any State payments from any payments they might be making because they were making no payments anyway. That point has not been picked up fairly across the industry. I am putting it on the record now because a narrative about this issue has carried through in that respect. With regard to the figure the Deputy mentioned, most of that relates to one particular company. Most of the other companies that have spoken on this in various public venues said they would not be deducting from any of this because they were not providing business interruption policies to start with. I want to make that clear. They were correct in what they said, but people did not fully grasp the subtlety of what they were saying.

When this issue arose and it came to our attention during the course of the pandemic that the limited number of insurance companies that had business interruption policies were deducting some of the State payments so that the business or sometimes sole traders, if they were publicans or restaurateurs, would receive the net loss, there was concern in the Department and the Government that the insurance companies might make a profit from the State supports. We immediately examined this matter closely with a view to dealing with it, but it became clear from legal advice that it was not possible to legislate retrospectively. Bear in mind that these policies might have been written before the Covid-19 pandemic and these payments happened during it. When we saw this happening, it was not possible to come back and change a policy that was written 18 months or two years previously because it was a legal document. It was not possible to look back retrospectively to claim payments in respect of policies that were issued and in existence before that.

The issue that arises then, and I would put this down as one of the big lessons from Covid, is that we saw what happened. The reason we are introducing these sections is so we can gather information on these supports, and if any other situation arises in the future, we will have a base to work from and to understand how it works. It might not be related to Covid. Some other issue could arise in the country where there is an insurance policy and the State is also supplementing some of the cost. This is a forward-looking legislative measure and it is important that it be seen in that context.

I will make another point. The reason I looked at this at that stage was that I was conscious that, under the Department of Social Protection, other State payments may be relevant to insurance claims. There already are processes in place. We already had legislation in place dating back many years strictly to deal with what is known as the recovery of benefits and assistance scheme by the Department of Social Protection. I will explain it simply. Let us say somebody was in a car accident and he or she was out of work for a significant period and received disability payments for a period. Then the insurance company settles the claim in due course. It estimates the value of the person's claim at €100,000, for example, but the person has already received €20,000 from the State. If the company pays out the €100,000 there is a legal mechanism in place for the insurance company to refund that €20,000 back to the State. That happens currently. Ultimately, we want to get to that situation across the board, but the first thing we must do is gather information on this.

On the up-to-date figure I have in respect of business interruption policies, the Central Bank has stated that a number of insurers accepted and commenced settling claims as a result of the Central Bank's intervention. I welcome recent data to the end of February 2022 which show that more than €171 million has been paid to 5,312 policyholders through settled claims and interim payments. This is up from the earlier figure.

Another point is that this matter is still before the courts, so the matter may yet come to light as part of the quantum hearing in ongoing litigation that remains before the courts. The approach of the Bill is designed to ensure we do not pre-empt any legal ruling by passing legislation at this stage before the relevant court cases are dealt with. This issue may be raised during those quantum hearings which are not yet concluded. From that point of view, I am precluded from saying anything further on this because, as people will appreciate, the matter is currently before the courts.

However, this is really a lesson learned for the future. We want to have a cross-government approach. We already have it in the Department of Social Protection and, ultimately, I would like to see this in any Department where a similar situation could arise in the future. The first thing that must be done is gather the information so the Central Bank will be able to give us information. When we get that information we can then look at policy implications and draw up legislation in due course.

Although my next question is about the information, it relates to sections 3 and 4, so I will wait until we get to section 3.

Question put and agreed to.
Question proposed: "That section 3 stand part of the Bill."

Sections 3 and 4 require, as part of the national claims information database, data on any deductions from insurance claims settlements by insurance companies that relate to public moneys. In that regard, and I realise the Minister of State said he cannot speak further on some parts, exactly what will be done with the information it will detail?

We do not have the information yet.

When it is gathered.

My view and the Government's view on this is that we should gather the information and see what the facts are. When we see the facts, we will be able to make a decision. I have no idea what the facts will be until we gather them. The purpose of this is to start gathering the information and the facts. There is a precedent in social protection legislation which, in my view, is probably the model we should follow, but we need information about what happened during Covid before we can draft any proposal. We have to gather the information first. I have an open mind, but my instinct is no insurance company should profit on any State supports, and I believe there would be a unanimous view in the House on that.

However, we do not have information to draft legislation accurately at this stage.

Question put and agreed to.
Section 4 agreed to.
Question proposed: "That section 5 stand part of the Bill."

I have a question on this. Sections 5 and 6 relate to the issue of dual pricing. Unfortunately, this practice is where companies are identifying loyal but often vulnerable customers who might not have the ability to look around insurance companies and are less likely to shop around, but are also more than likely more sensitive to price changes and so forth. It is often recognised that price gouging undermines the interests of loyal customers, and this has long been talked about in the House.

Indeed, it is something a lot of customers talk about a lot as well. It is welcome that the Central Bank is taking action in regard to banning price discrimination. This is clearly something Deputy Pearse Doherty has been campaigning on for a long number of years and, in fact, he submitted a complaint as far back as October 2019.

What is important is that when regulations come into force, they are kept under constant review. We know that the Central Bank had previously found that 2.5 million customers were paying a combined €187 million more than the actual cost of their policies, which is very significant. Can the Minister of State advise in regard to keeping these regulations under constant review, if that will be happening and how he sees that going forward?

I thank the Deputy for her constructive comments. I acknowledge the role of her party colleague, Deputy Doherty, in dealing with this topic over a period of time.

We had complicated issues with price walking and dual pricing, and they were connected issues but subtly different in their own way. What is happening here is that we are dealing with this issue as part of the programme for Government and the action plan for insurance across all Departments. To put the insurance plan in context, the relevant committee is chaired by the Tánaiste, so the Department of Enterprise, Trade and Employment is involved, as is the Minister for Finance, Deputy Donohoe, and I am also involved from the Department of Finance because insurance is a regulated industry. The committee also involves the Minister for Public Expenditure and Reform, the Minister for Children, Equality, Disability, Integration and Youth and, in particular, the Minister for Justice because much of the legislation comes from the Department of Justice with regard to insurance. It is a whole-of-government approach.

In dealing with the action plan for insurance, all the bodies I have mentioned have different roles on different aspects, different legislation comes from the Department of Justice, and State agencies like the Central Bank have a key role in implementing some of the measures. The Department of Finance has put forward this Bill and we also helped bring forward legislation on the personal injuries guidelines six months earlier than had originally been envisaged. Right across that committee, different sections of the State are doing different operations.

In this section, what we have is an acknowledgement that the Central Bank has agreed to implement this from 1 July for dual pricing only. That is in regard to motor policies, whereby people should get a price equivalent to that of a new customer. We have had what we call the loyalty penalty, whereby people who are with an insurance company and never seek to move to another company may well have been paying too much for not doing that. After nine years, they would be paying a penalty of about 12% or 14%. The issue in the house insurance market is even more serious and, after nine years, some people are paying up to 34% over and above what they would be paying if they were a new customer going into the same insurance company to insure the same house for the same value.

That is extraordinary but understandable. Just around Leinster House, I have asked people which company their house insurance is with and they reply that they got their house insurance when they took out their mortgage, and they are not exactly sure. Very few people query their house insurance because it just goes through as part of the mortgage payment. For that reason, I think insurance companies have abused the situation and loyal customers, and they were adding a small percentage, year by year, knowing people would never check it. I encourage people to find out which company their house insurance is with in the first place, and to make sure they make the phone call at the next renewal date.

From 1 July, this practice is going to be outlawed by the Central Bank. The amendment in this section arises because the Department of Finance has insisted that the Central Bank will not just do it, because it will do it, but that it will produce a report within a set timeframe of one year after the coming into being of the Act, or as quickly as possible thereafter. I am sure that report will be published by the Central Bank directly as well. We have asked for some interim information after a six-month period to see the effect of this change. There is no point in something happening if we do not have the evidence to track it. Our role here is to make sure there is a reporting mechanism back into the system. This practice has been ongoing for ages and it is now coming to an end. We want the evidence and the proof that it is coming to an end. That is why we have this section to make sure there is a clear report from the Central Bank in regard to those areas.

We are the first country in the EU to introduce this price walking ban. Other countries in the EU have been talking about it and England has commenced a similar but slightly different approach, but we are the first country in the EU to introduce this. This is to ensure the Central Bank comes back to us next year with the hard information and then, like everything else, when we get the information, we will be in a position to take whatever policy decisions are required. I expect that, given the fact the Central Bank is outlawing the practice straightaway from 1 July, we will see reductions in those cases for loyal, long-standing customers.

It is shocking that insurers have been doing that. Many people imagine that if they are loyal to a company, it will be loyal to them and will support them and make sure they get the best deal. Unfortunately, we often find out that simply is not the case. What the Minister of State said in regard to home insurance is particularly shocking. If an insurance company is caught still doing this, do we know what kind of penalties will apply?

We do not have the information yet. Until now, it has been quite legal for them to do it and there is no provision against this abuse of customers’ loyalty. It is shocking that the insurance companies were doing that for years. That is why this is now coming to a head. The Central Bank has the regulatory powers to deal with the issue. In regard to the companies, the Central Bank can seek information, it can do audits and, as with previous issues, it will write to the chief executives to correct this. It has powers in regard to the licences of these companies to ensure they comply with good practice and consumer protection. The Central Bank itself would be the sanctioning body with the insurance companies because it is the regulator, not the Department of Finance.

Question put and agreed to.
Question proposed: “That section 6 stand part of the Bill.”

This relates to the same issue. It is about the report on the issues we have just discussed.

Question put and agreed to.
Section 7 agreed to.
Question proposed: “That section 8 stand part of the Bill.”

I want to make the committee aware that, only in respect of this area, we are considering a technical drafting amendment to section 16A, which is being inserted by section 8 of this Bill. We will revert on this if we have an amendment on Report Stage. I am signalling now that we may have an amendment but no details have been finalised so I cannot get into any specifics. We will be upfront on it when it comes to Report Stage.

Question put and agreed to.
Sections 9 and 10 agreed to.
Question proposed: “That section 11 stand part of the Bill.”

For the benefit of people who are listening, some of these amendments are amendments to the Consumer Insurance Contracts Act 2019, in which Deputy Doherty was involved a number of years ago. That has been in operation for a couple of years and these are technical amendments just to tidy up and improve some of the wording. I want to acknowledge it is the Consumer Insurance Contracts Act 2019 to which we are making some technical amendments in this section.

Section 11 has important provisions that provide for technical changes. In the context of Brexit, the Minister of State might give an update in the context of section 11.

I will put a note on the record. In order to protect consumers’ interests, section 11 amends the European Union (Insurance and Reinsurance) Regulations 2015.

These amendments will provide for technical changes in order to address two issues identified by the Central Bank of Ireland and relating to the scope of an insurance temporary run-off regime for UK- and Gibraltar-authorised insurers. This arises directly as a result of Brexit. The temporary run-off regime was established to facilitate the orderly withdrawal of UK- and Gibraltar-authorised insurers from the Irish market following the departure of the UK from the EU in order to protect almost 35,000 policyholders. Those companies provided insurance policies to 35,000 policyholders but are now withdrawing from the market because of Brexit. The aim was to enable such firms to continue to service their existing portfolio of business for up to 15 years in order to ensure service continuity of those insurance contracts for existing Irish policyholders. Other EU member states also introduced similar provisions.

Section 11 provides for the following changes to the scope of the temporary run-off scheme. First, it amends the 2015 regulation to provide that UK and Gibraltar firms in the temporary run-off regime that are in the process of running off their existing insurance liabilities in the State may provide third-party reinsurance business here. This change will align the temporary run-off regime with the provisions of the 2015 regulations whereby third-country undertakings can carry on reinsurance activities in the State, provided that they satisfy certain conditions. This should also assist to preserve reinsurance capacity in the Irish market. This is to facilitate the wind-down in an orderly manner.

Section 11 further amends the 2015 regulations to enable firms in liquidation that otherwise satisfy the conditions of the temporary run-off regime but may have had their authorisation withdrawn under the law in the UK or Gibraltar prior to the UK’s departure from the EU to enter into the regime and run-off their Irish insurance portfolio in order to terminate their activity in the State. This is a separate provision to deal with insurance companies that have gone into liquidation and will not be continuing in the long term. This is necessary as the current wording of the 2015 regulations makes it a condition of entry to the temporary run-off scheme that the entity was, immediately before the relevant date, authorised as an insurance undertaking under the law in the UK or Gibraltar. However, some firms in liquidation may have had their authorisation withdrawn before 2021 on the opening of the winding-up of the proceedings and, therefore, would not otherwise be able to enter the temporary run-off scheme. It is important to note that these changes to the 2015 regulations merely reflect what was the original policy intent behind the temporary run-off scheme. The amendments will not give UK- or Gibraltar-based insurance firms any competitive advantage over firms based in Ireland or elsewhere in the EU or EEA. As it is an issue relating to dates, we were concerned that these firms would be captured. It may be the case that some companies that were in liquidation and had their authorisation withdrawn before 1 January may not otherwise be able to fully avail of this temporary run-off scheme. There is no change in policy; it is just a clarification of an issue relating to dates.

I thank the Minister of State. I thought it would be interesting for people to hear his remarks, especially as this issue is so relevant at the moment.

Question put and agreed to.
Title agreed to.
Bill reported without amendment.

Do members wish to make any final comments on the Bill before we call on the Minister of State?

I have nothing to add, other than to thank the members of the committee.

I thank the members of the committee and the Minister of State for their co-operation. Nobody wants to make any final remarks; it is late enough.