When the debate on the Insurance Bill, 1987, was interrupted last week, I was dealing with Deputy Durkan's concerns about the manner in which some life assurance policies are sold because of the "hard-sell" attitude of certain unscrupulous insurance salesmen. I would point out that the introduction, earlier this year, by the Irish Insurance Federation of a code of practice regarding the acceptance of certain regular premium life assurance policies, is a most welcome development and improves matters considerably in this area. The code of practice was drawn up following consultation with the Director of Consumer Affairs and provides for a 15 day cooling-off period for consumers who have taken out new life assurance policies. Now, each life assurance policy contains a notice informing policyholders that they have the right to withdraw from the policy within 15 days. The notice also draws particular attention to the terms and conditions of the policy and its surrender value.
Under section 54 of the Bill, the Minister can by order, lay down codes of conduct for brokers and agents for observance in their dealings with the public or with insurance companies. It is expected that these powers will be exercised to underpin and extend present good practice.
Deputy O'Malley referred to section 35 which deals with the duties of auditors. He raised the question of its enforcement and I can clarify that any auditor who fails to comply with the provisions of this section is guilty of an offence under the general offences and penalties outlined in section 3.
Regarding Deputy O'Malley's point on the subjective nature of the phrase "has reason to believe", I should point out that this phrase should not be considered in isolation. Account should also be taken of its context within any subsection in which it appears. There has to be an element of subjectivity in a provision such as this, simply because the auditor is the person on whom such responsibility will fall. The overall aim, however, is to ensure that he reports only in circumstances where there is a real danger that a company will not be able to fulfil its financial requirements under the insurance Acts. By confining the provision to apply only in circumstances which will materially affect an insurer's ability to do so I feel we have achieved the right balance between subjectivity and objectivity.
Deputy Bruton asserted that the relative burdens in Part IV of the Bill on insurance brokers and insurance agents meant that the requirements imposed on insurance agents would be much less onerous. While that may indeed have been the position when the insurance Bill was originally published by the previous Government, it is certainly no longer the case now following the amendments adopted by Seanad Éireann earlier this year. Other Deputies considered that the Bill did not draw sufficient distinction between agents and brokers and also raised points regarding the law of agency and client protection in relation to agents and brokers.
The purpose of the regulation of insurance intermediaries is to raise standards, to provide for full disclosure of status on the part of intermediaries, and to lay down desirable financial protections for the public in their dealings with all types of insurance intermediaries, be they tied agents, multiple agents or brokers.
Financial protection for the consumer is achieved by making insurers, that is insurance companies, fully responsible for all actions of tied agents; and by laying down identical rules for insurance brokers and insurance agents in the areas of bonding and separate bank accounts for client moneys handled by them.
The only difference in treatment between insurance brokers and insurance agents, in terms of compliance costs imposed by the Bill, arises in the area of professional indemnity insurance. Brokers offer themselves as fully independent advisers acting for a client, and it follows therefore that they must have independent sources of protection. For this reason, the Bill gives the Minister power to make compulsory professional indemnity insurance regulations which will apply to brokers. Most bona fide brokers carry such insurance already on grounds of commercial prudence.
Agents on the other hand act for specific insurance companies and so the companies concerned must accept a measure of responsibility for them. Accordingly, the Bill proposes to make insurers responsible in certain circumstances for the errors and omissions of agents. This is in effect a form of professional indemnity cover provided by insurance companies in relation to agents.
On consumer information grounds, the Bill provides for full disclosure of precise status on the part of tied agents and independent agents in their dealings with clients.
If an insurance premium is paid by a client to an agent or broker in respect of a renewal of a policy or in respect of an accepted proposal, the premium will be treated as having been paid to the insurer when in fact it is paid to the insurance intermediary. In other words, the insurance company concerned stands behind the agent or broker and the client is not at risk in relation to the premium paid.
In addition any intermediary failing to meet financial or legal obligations in relation to any sum of money received by him from or on behalf of a client will be automatically disqualified from further acting as an intermediary. This is an eminently desirable provision to protect consumers from those who have shown by their past actions that they are not to be trusted. Some Deputies have stated that the number of agencies which an agent can hold is too high and that we should limit agents to one life and one non-life agency and polarise the intermediary market.
The first thing I want to make clear is that under the Bill originally published in 1986, there was no proposal to limit the number of agencies which an agent could hold. So this amended Bill is a quantum leap forward in as much as it proposes to limit agents to four life and four non-life agencies.
The Irish Insurance Federation, which represents all strands of opinion within the insurance industry on the underwriting side, feel that the Bill, as presently drafted, represents an acceptable compromise which will allow the market to operate in an orderly fashion without any particular bias in favour of any one distribution system; in their opinion, any move to force polarisation on the market will create instability in the market place and ultimately reduce the choice available to the consumer.
The maximum number of agencies which may be held by an agent is directly related to the minimum number of agencies which a broker must hold, that is five life if he wishes to act as a life broker and five non-life agencies if he wishes to act as a non-life broker. We picked five agencies for brokers because that was the minimum necessary if brokers were to be able to offer a genuine choice of insurance companies to their clients. I think it is agreed by all concerned that a broker represents himself as being in the position of giving top quality advice based on products on offer from a range of insurance companies — he could hardly do that with a limited number of agencies and for that reason we have selected the figure of five agencies.
I said in the Seanad and I will repeat it again in this House that I am quite prepared to listen to any reasonable alternatives — if there are any — to what I am proposing but I have yet to hear such alternatives. I am aware that there are many agents out there at present with two, three and four agencies in life and non-life insurance. It is no good simplistically saying that agents should be statutorily confined to one or two agencies if you do not have the solutions to the problem that such a proposal creates. However, I am prepared to listen to any alternative proposals and to consider the matter again betwen now and Committee Stage of this Bill.
Deputy Dempsey inquired about the system of ministerial recognition of broker bodies. Following enactment the Minister will be empowered to formally recognise broker representative bodies which require compliance by their members with the provisions of the Act. This allows an insurance company to appoint a member of a recognised representative body of brokers as an intermediary, to pay him commission and to rely on such membership as evidence that the broker complies in all respects with the statutory requirements of the legislation. The onus for compliance in such circumstances will rest with the recognised broker body concerned.
There will be no ministerial recognition of brokers on an individual basis; insurance companies, whether individually or collectively, will ensure compliance by such non-affiliated individuals with the legal requirements before granting agency appointments or paying commission.
In all other cases the insurance company will have to make reasonable inquiries on an ongoing basis or cause reasonable inquiry to be made on behalf of the company — that a person complies with the statutory requirements before appointing him as an intermediary or paying him or her commission.
The benefit of the proposed self regulatory scheme is that it places the primary responsibility for regulation where it properly belongs and can more effectively be carried out, that is in the market place itself between the intermediaries and insurance companies concerned. The compliance costs on the market will therefore be less while affording adequate levels of protection to the public at the same time.
This new approach will put the onus on insurance companies — whether individually or collectively — to make reasonable inquiries regarding the people to whom they pay commission. This to me seems a prudent requirement. The insurance companies and the broker bodies may if they wish act together to set up a centralised clearing house arrangement for members of broker bodies that is to check on number and types of agencies held, professional indemnity insurance cover, bonding, separate bank accounts etc. A similar structure can also be put in place by the insurance companies for their insurance agents thereby eliminating any duplication of checking procedures at the level of the individual company. The market will be free to introduce whatever procedures it deems most cost-effective and practical to verify compliance with the level of requirements. In my view the new arrangements represent the best of both worlds, that is self regulation underpinned by statute.
Deputy Dennehy expressed concern whether persons other than brokers and agents complying with the provisions of the Bill, but nevertheless acting in an introductory capacity for the purpose of insurance business would be debarred from any commission payment or commission sharing agreement with an agent or broker under the Bill. The answer is that under section 45 (3) a commission payment can be made by an insurance broker or insurance agent to another person in relation to an insurance policy which the insurance broker or insurance agent has placed with an insurance company. In other words, the Bill specifically caters for normal commission sharing arrangements with introductory sources of business provided the contract is placed via an insurance broker or insurance agent who complies with the Bill. This latter proviso is an obvious necessity from the point of view of consumer protection and to prevent unscrupulous persons from carrying on full-time activity in the insurance area as intermediaries while not complying with the provisions of the law. However, we are not in the business of putting unnecessary restraints on normal commercial relationships in the market place, and insurance companies and intermediaries both have welcomed the manner in which this section has been framed.
Deputy O'Malley expressed concern about the cost of product liability insurance. The most recent Confederation of Irish Industry survey carried out in August of this year found that the cost of this cover for industry was on average 0.52 per cent of payroll and that to date there had been no explosion in the premiums charged resulting from the product liability directive. This is an area which the industrial costs monitoring group of my Department will continue to keep under review given its importance to our exporting sectors in particular.
Deputy Mac Giolla made the point that certain types of insurance particularly employers' and public liability should be compulsory in this country on grounds of social policy. Of course, I recognise that any sensible businessman will carry employers' liability and public liability insurance on grounds of commercial prudence alone, as otherwise the risk of a very large award for personal injury, if not capable of being met out of the company's free capital, may well force closure of his business. However, I would point out that making employers' liability and public liability insurance compulsory will not solve the problems of cost and availability which will inevitably arise in certain cases from time to time. Some small industries providing much needed employment could, therefore, be closed for the lack of such cover.
Deputy Lowry alleged that insurance companies are not passing on savings arising from the Courts Act, 1988. In this connection, I would point out that the Act only came into force from August this year, and it is far too early to expect savings to have materialised. However, I have already stated in the course of this debate that recent trends in motor and liability premium rates are encouraging. It is clear that competition and Government action have already created the momentum to bring about actual reductions in insurance premium levels for both industry and the motoring public. Deputies will appreciate that the cost of insurance is directly related to the number and cost of claims. Only when the number of accidents, settlement and award levels and other associated costs are reduced will the problem of high insurance premiums be resolved. Let no-one be in any doubt that insurance costs are beginning to moderate and fall.
Deputy Mac Giolla alleged that certain insurance companies discriminate against certain areas of the city for insurance purposes. Following discussions in February 1987 between the inner city development steering group of Dublin Corporation and the Irish Insurance Federation, the federation emphasised that: insurers do not regard any area in Dublin city as a "no-go area" for the purposes of providing cover; each case is assessed on its own merits, but a very few risks are genuinely uninsurable; social problems which give rise to high claims and premium costs are neither within the control of insurers nor unique to Dublin; such problems and their consequences are, if anything, more acute in Britain and elsewhere; and claims and premiums are directly and closely linked; premiums cannot be reduced unless and until claims fall.
In cases where property cover cannot be obtained despite reasonable efforts to place the risk in the Irish market, the insurance section of my Department should be contacted with the details. The Irish Insurance Federation's Property Standing Committee is prepared to reexamine such cases on the strict understanding that it cannot guarantee to provide cover. Third party motor insurance is ultimately available through the mechanism of the declined cases agreement.
Deputy Lowry referred to the relationship between the Bank of Ireland and its life assurance subsidiary Lifetime. I can confirm that the Irish Insurance Federation have written to my Department outlining a number of complaints on this matter. These complaints are still under investigation and Deputies will appreciate that it would not be appropriate for me to comment further at this stage.
