Seanad Éireann díospóireacht -
Thursday, 15 Sep 2011

Vol. 210 No. 2

Insurance (Amendment) Bill 2011: Second Stage

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

Minister for Finance (Deputy Michael Noonan)

I welcome the opportunity to address Seanad Éireann on the Insurance (Amendment) Bill 2011 which was published on Tuesday, 13 September. Owing to changes in EU law dealing with the non-life insurance sector since the fund was last used, it was necessary to get legal advice on the existing legislation. The Attorney General advised that our existing legislation was not compatible with EU law and should be amended. In that light, the Bill proposes to amend the Insurance Act 1964 to change the scope of the insurance compensation fund, ICF, from one which covers the risks of policyholders of Irish authorised insurance companies to one which covers all insured risk in the State, except for specific excluded risks. The effect of this is that, except for specified excluded risks, all insurance policies taken out in relation to risks in the State come within the remit of the scheme. Insured risks outside the State are no longer covered by the scheme, where an insurance company is being liquidated.

I will outline also the main reason for having the matter addressed speedily by the Oireachtas. The joint administrators of Quinn Insurance Limited hope to conclude the sale of the company to Liberty Mutual Direct Insurance Company Limited, a joint venture between Liberty Mutual and Anglo Irish Bank, on 4 October and they are to report to the High Court that day to give effect to this. One of the key requirements which will have to be demonstrated to the court by the joint administrators is that there is a commitment in place from me, as Minister for Finance, to advance the necessary funds to the ICF in response to a request from the Central Bank. There is €40 million in the fund and the joint administrators have informed the bank that more is required. It is important that all these elements are in order in order that the remaining elements of the deal can be completed and sale be finalised. This will complete an important milestone in the administration process, which will see the sale of Quinn Insurance Limited completed and ensure the future of the workforce is secure. Senators will recall that more than 1,600 jobs are at stake.

The Bill comprises ten sections, the main elements of which are set out as follows. Section 1 is the definition section. The purpose of this provision is to acknowledge that the principal Act is the Insurance Act 1964.

Section 2 is an amendment of the definitions section of the principal Act. The purpose of this provision is to introduce a number of new definitions to section 1 of the Insurance Act 1964 and update the existing definitions for "authorisation", "policy" and "insurer". These will allow the scope of the scheme to be extended to cover all insured risk in the State, except for specific excluded risks. The excluded risks include health insurance mainly because a large proportion of the market, namely, VHI, is outside the scope of the current ICF legislation. Similarly, life insurance is not covered by the existing scheme. There is also a definition for "insurer authorised in another member state" as this is required under the new scheme since such insurers can operate in the Irish market on a branch basis or on a freedom of service basis and policyholders of these companies are brought into the scheme in relation to risk in the State.

Section 3 is an amendment of section 2 of the principal Act relating to the insurance compensation fund. This is a technical provision and its purpose is to make a number of minor cross-referencing changes to section 2 of the Insurance Act 1964, consequential on the amendments made in this Bill.

Section 4 relates to payments out of the fund in respect of an insolvent insurer. The purpose of this provision is to replace section 3 of the Insurance Act 1964 and introduce three new sections: 3A — application by a liquidator of an insolvent insurer; 3B — application where insurer in liquidation is insurer authorised in another member state; and 3C — payments out of fund where an administrator is appointed. These provisions are designed to facilitate payments out of the fund to policyholders in relation to risks in the State where an Irish authorised or an EU authorised insurer goes into liquidation and the approval of the High Court has been obtained for such payments.

Section 3 provides context for sections 3A and 3B and sets out the limitations to the payments which can be made from the fund. These limitations replicate what is contained in the existing legislation, the most important of which is that the payment from the fund under a policy shall not exceed 65% of that sum or €825,000, whichever is the less, in the event of payments being made to policyholders after the liquidation of an insurer. Under the new scheme policyholders will be covered by the fund in respect of "risks in the State." The principal factors which will determine whether a risk is a "risk in the State" will be whether insured buildings are located in the State, whether insured vehicles are registered in the State, in the case of short-term travel insurance whether the insurance was taken out in the State and in most other cases whether the habitual residence of the policyholder is in the State or, in the case of legal persons, whether the establishment of the policyholder is in the State.

Section 3A provides for the liquidator to make payments from the fund to policyholders of Irish authorised firms and that the accountant of the High Court shall, as respects the amount paid out of the fund, be a creditor of the insurer. Section 3B provides that if an insurance undertaking in another member state goes into liquidation and policyholders in relation to risk in the State are affected, the accountant of the High Court can make an application to the High Court on their behalf and can distribute any sums due to such policyholders.

Section 3C provides for the continuation of the administration provision as set out in the Insurance Act 1964, but prospectively intends confining the availability of funding from the ICF to firms under administration which conduct a large percentage of their overall business in Ireland, that being 70% averaged over the three years before the appointment of the administrator. Companies under administration will continue to operate under the existing scheme as is provided for in section 9. Senators should know that I intend to propose one Committee Stage technical amendment for this section.

The purpose of section 5 is to repeal section 4 of the Insurance Act 1964, which the Office of the Attorney General has advised is obsolete as it relates to a specific insolvency in 1964, namely the Equitable Insurance Company Limited. This provision allowed the Minister for Finance to provide a grant of £30,000 to the fund out of moneys provided by the Houses of the Oireachtas under section 3 of the existing legislation to go to the liquidator of Equitable Insurance Company Limited. As this matter was resolved a long time ago, this provision is no longer necessary.

Section 6 is an amendment of section 5 of the principal Act relating to advances to the fund by the Minister. This is a technical amendment. The purpose of the provision is to make a cross-referencing change to section 5 of the Insurance Act 1964, consequential on the amendments made in section 4 of the Bill.

The purpose of section 7 is to replace section 6 of the Insurance Act 1964. The section sets out the conditions for levying insurance companies in relation to the ICF. The provision sets out a number of elements. First, the Central Bank continues to be responsible for assessing the fund from time to time to see if it needs financial support. In addition, the Central Bank determines the levy to be placed on insurers where funding is required and notifies them. Second, the Minister for Finance is provided with a power to appoint a collector to collect the levy, who will pass the levy to the ICF. The collector will inform the Central Bank where no payment is made. Third, the Central Bank will continue to be responsible for enforcement in the event of non-payment of the levy. Fourth, the levy is required to be reviewed regularly and, fifth, all insurance companies will be levied in respect of risks in the State under the new scheme. This contrasts with the existing scheme under which only Irish authorised insurers are levied, but in that scheme they are levied in respect of risks inside or outside the State.

Section 8 repeals section 31 — the compensation insurance fund — of the Insurance Act 1989 and is a technical amendment. The purpose of this provision is to repeal section 31 of the Insurance Act 1989, which made amendments to section 3 of the 1964 Act. These amendments are now obsolete as they are superseded by section 4 of the Bill.

Section 9 concerns saving. The purpose of this provision is to provide a saving mechanism and to ensure any liquidations or administrations commenced before the Bill comes into effect will continue to be subject to the old rules. This is the standard convention that a company under administration is protected under the rules that applied when the company went into administration. The effect of this is to ensure that Quinn Insurance Limited remains under administration as if this Bill had not been introduced.

The purpose of section 10 is to provide for the Short Title of the Bill.

Senator Thomas Byrne

On a point of order, in the light of the urgency of this legislation — I protested against the fact that all Stages are being taken today in the Seanad — more Members should be present and, therefore, I call a quorum.

Notice taken that 12 Members were not present; House counted and 12 Members being present,

Deputy Michael Noonan

I would like to deal with the background to the Bill and elaborate on the main reasons for it. This has arisen as a result of the announcement of the sale of Quinn Insurance Limited to Liberty Mutual Direct Insurance Company Limited, LMDI, on 28 April. At the time the joint administrators indicated that Quinn Insurance Limited had suffered losses of €905 million in 2009 due largely to operating losses in the UK market and a write down in the value of assets, particularly in regard to the company's investment in Quinn Property Holdings. Further related losses in 2010 are expected to be €160 million. They also indicated that there was likely to be a call on the insurance compensation fund in the region of €600 million. In recent weeks the joint administrators have revised this figure upwards to €720 million. The main reason for this is an increase in the outstanding claims reserve which was required after the finalisation of the 2010 actuarial review by Quinn Insurance Limited's actuaries.

It should be noted that given the nature of claims reserves and the inherent uncertainty surrounding the ultimate claims costs, the joint administrators say it is not possible to state with certainty what the final call on the fund will be until all claims have been discharged which could take up to ten years. However, in the interests of prudence, they are obliged to make a conservative provision of what the future claims could be.

As Minister for Finance, I was becoming concerned about what seemed like an expanding call on the insurance compensation fund. In that light, I asked the State Claims Agency, which has specialist skills in the area of claims management and reserving, to undertake a review of the processes at Quinn Insurance Limited and, in particular, have a look at the claims management process. My concern was that because the company was in administration and, therefore, eligible for funding from the insurance compensation fund there might be a more relaxed attitude about being sufficiently robust when dealing with the settlement and payment of claims and that this could be part of the reason for the increasing size of the call on the fund. This was a very important point to establish as, ultimately, it is policyholders who will pay for any shortfall. I wanted to make sure that the appropriate systems and processes were sufficiently wholesome to ensure the call on the fund is kept to an absolute minimum.

The State Claims Agency has almost completed its review and in its interim report has reassured me that the claims management process is operating effectively. It indicated that reserving had improved considerably since the joint administrators had taken over the running of the business but there was potential for improvement in some other areas. In summary, it considered the increased call on the fund, as a result of various actuarial reserving reviews, was appropriate.

Once the joint administrators had indicated that there was likely to be a significant call on the ICF, the Central Bank was required, under section 6(2) of the Insurance Act 1964, to assess the financial well-being of the fund to advise me as Minister for Finance, under section 5(1), whether I needed to advance money to the fund. At the time of the sales announcement in April the joint administrators had indicated that there was likely to be a call of €600 million on the ICF. On 25 May, on the basis of information supplied by the joint administrators, the bank advised that of this amount, there was likely to be a shortfall of approximately €173 million for 2011, meaning money would need to be advanced this year. This was based on a requirement by the administrators of €203 million and the fact that there was €30 million in the fund at the time. However, as I said, the administrators subsequently revised their overall call to €720 million and some €320 million will be required this year. As there is €40 million in the fund, I will need to advance €280 million in early October. I have made an appropriate provision for this.

It is important to keep in mind that any advance by the Exchequer to the fund will be classified as a financial transaction and as such, is not seen as expenditure and, therefore, does not affect the general government deficit and our targets under the EU-IMF framework. An appropriate market rate of interest will be applied to this advance which means it will marginally improve the GGB.

Currently, under the Insurance Act 1964, all policyholders of Irish authorised firms are covered by the ICF, whether they are located in Ireland or other EU member states. The legislation also provides that all such companies are required to be levied whenever there are insufficient funds in the ICF to meet a particular demand such as the Quinn Insurance Limited deficit. However, because of changes in EU law since the fund was last used, it was necessary to get legal advice on the application of the ICF levy. In particular, Article 46 of the third non-life insurance directive — 92/49/EEC — precludes a member state from applying an indirect tax or parafiscal charge on insurance risks outside of its jurisdiction; therefore, the 1964 Act was in contravention of this provision. My Department sought legal advice from the Attorney General on this issue and she concluded that if a levy was applied on insurance companies on risks outside the State in the context of an administration or a liquidation, this would appear to infringe Article 46.2 of the directive. In the light of this, she concluded that a levy could only be applied in respect of those risks located in Ireland. A consequence of this is that we cannot apply the ICF levy to international risks; therefore, our legislation must be changed to reflect this position, thus explaining the amendments being made in this Bill to Article 6 of the 1964 Insurance Act.

I have also been advised to amend the scheme such that, as far as possible, risks outside the State are no longer covered by the fund. Failure to do this could result in Irish policyholders having to fund a deficit resulting from the failure of an Irish authorised insurance company which conducts the bulk or all of its business outside the State. This change is reflected in the amendments being made to section 3 of the 1964 Insurance Act.

I have decided to use this legislative opportunity to broaden the scope of the ICF to cover all insured risks in the State. This will protect policyholders in this country who take out cover with companies authorised in other EU member states and which are not covered by the existing scheme. Another benefit of this approach is that it means that all policies in relation to risks in the State, aside from excluded risks, can be levied for the ICF. This is important because it means that the revenue base for the levy is secured and, therefore, even if existing subsidiaries convert to branches, they will still be required to pay it on their policies and it prevents branches and freedom of service business from having a competitive advantage over domestically authorised firms.

I have decided for the moment to exclude health insurance from the scope of the scheme because the main player in the market, VHI, is outside the current ICF legislation. In addition, I have a concern about placing an additional 2% on health insurance premiums at a time when there has been a significant increase in the number of people not renewing their policies because of the difficult economic climate.

It should be noted that I propose to maintain the administration provision as set out in the Insurance Act 1964 but prospectively intend confining the availability of funding from the ICF to firms under administration which conduct a large percentage of their overall business in Ireland, that being, as I said previously, 70% averaged over the three years before the appointment of an administrator. The purpose of the restriction is to prevent Irish policyholders being burdened with paying for the administration of an insurance business which conducts all or the bulk of its business outside the State in circumstances where it is not possible to levy the premiums of foreign policyholders because of Article 46 of the third non-life directive.

The European Commission, on both the competition and Internal Market sides, is aware of our legislative proposal and has no objection to it. Directorate General Internal Market has, however, indicated that, whenever the insurance guarantee directive is approved, our legislation will have to be amended to reflect the new position. It is likely that this will be in a minimum of three to four years time and will be the same for all other member states.

I remind Senators about the reform taking place in the financial regulatory environment in Ireland. They will already be aware that a number of changes have been made to respond to the regulatory failures of the financial crisis and bring our system into line with international best practice. The Central Bank Reform Act 2010 created a unitary Central Bank with responsibility for prudential regulation, financial stability and consumer protection. The Act also introduced a fitness and probity regime for those working in positions of influence in the financial sector, including specific standards for those working in the insurance industry.

As part of the EU-IMF programme, the Government has published the Central Bank (Supervision and Enforcement) Bill 2011 which enhances the Central Bank's regulatory powers, drawing on the lessons of the recent past in Ireland and abroad. The Bill strengthens the ability of the Central Bank to impose and supervise compliance with regulatory requirements and undertake timely prudential interventions. It will provide the bank with greater access to information and analysis and underpin the credible enforcement of Irish financial services legislation in line with international best practice. The Bill has been welcomed in the formal European Central Bank opinion issued in recent days.

With regard to the regulation of the insurance market specifically, a number of developments in the past 18 months to strengthen the regulation of the sector have taken place. The Central Bank has indicated that its staff resources in the insurance area have increased significantly from less then 50 to just over 100 people. An authorised officer regime which allows the bank to appoint outside experts such as actuaries to go in and investigate a company on its behalf has been introduced. The obligation of the Central Bank to promote financial services has been removed.

Senators should also bear in mind developments to strengthen regulation of the insurance sector at an international level. The forthcoming EU solvency II directive represents the first stage of a major transformation of the way the industry will be regulated. The most essential features of the framework directive are the introduction of an economic risk-based approach to the measurement of assets and liabilities and a much greater focus on qualitative issues such as governance and the role of the supervisor. Capital requirements will be determined by an evaluation of a company's level of risk using a consistent set of measurement principles, resulting in an appropriate level of capital for solvency purposes. These changes will impact on all companies in the insurance sector and are likely to take effect from 2014.

While the Bill is technical in nature, its main purpose is to ensure our domestic legislation is compatible with the third non-life directive - 92/49/EEC - as advised by the Attorney General. I commend the Bill to the Seanad.

Acting Chairman (Senator Paul Coghlan)

I thank the Minister and welcome him to the House.

Senator Thomas Byrne

Gabhaim buíochas leis an Aire as teacht isteach sa Seanad inniu. Tá an-tábhacht ag baint le hAire atá chomh gnóthach leis an Aire Airgeadais ag teacht isteach anseo. Cuireann sin in iúl cé chomh tábhachtach agus atá an Bille seo.

I want to protest, in the most emphatic terms, that all Stages of this legislation are being taken today. If the Seanad is to become a rubber-stamp exercise, let us admit that and say it is just a rubber stamp exercise and that we will all go home, but if the Seanad is to have any role in the future, having regard to the referendum whenever it will take place, this should not be simply a foregone conclusion. It is up to the Seanad, particularly the Leader and the Deputy Leader, to advocate the cause of the Seanad to ensure Fine Gael and the Labour Party adhere to their commitment not to use the guillotine. While use of the guillotine is appropriate in certain circumstances, it is not appropriate to publish legislation on a Monday or a Tuesday, offer us a briefing on it the following day, which in fairness we got, and then pass all Stages of it on the following day. That is completely unacceptable. I urge Fine Gael and the Labour Party to advocate this within their parties and ask their parties, party leadership and Whips to stick to what they told the people prior to the general election about Dáil and Seanad reform. That is very important.

Having said that, this legislation is extremely important. It is another huge imposition on the people, one that certainly cannot be laid at the foot of this or the previous Government. This relates to the activities of a very small number of people, some of whom are still categorised as heroes in this country. I do not believe they are heroes and never did. When I stood up for the workers of Quinn Insurance, I certainly did not stand up for any particular individual, like many of its misguided workers did. It was a scandal of enormous proportions for which the people will pay directly in their insurance premiums.

While we all welcome the sale of the company to Liberty and are delighted that many jobs are being saved, it is a scandal that this particular episode has caused the closure of the Quinn centre in Navan. It is a beautiful building suitable for any type of good business. Any multinational would be ideally suited there. The centre is closed, empty and has no purpose now. That can be all laid at the door of a very small number of individuals who thought they knew more than anyone else in this country. They thought they could gamble millions and win and make themselves even richer than they were already. Anything they may have done in their own communities is irrelevant when one sees the hurt that has been caused throughout the country and the reputational damage, in particular.

I was delighted when Matthew Elderfield, in his early days in office, took action to protect policyholders and consumers. I was delighted to fully support his action while many others in the then Opposition criticised him and said what he was doing to the Quinn business was shocking as it was a viable business. We see the facts now in front of us and are all agreed it is a scandal and a disgrace. However, we are where we are, to use that most unfortunate phrase coined in recent years. I am not sure what purpose is served by us opposing this legislation, although we have concerns about it. We have not had time to finalise our position on it in the light of the very short notice we received of its introduction. It may well be the case that my Dáil colleagues will adopt a modified or different position. I hope that will be understood in terms of the position we are in and the very short notice that was given of its introduction.

I would like to know from the Minister when these matters arose. This issue has been on the agenda for quite some time. It seems we have not been complying with European law for some time. Why is this coming before the Seanad now? We know there is a sale to be completed in a month's time but why was this matter not addressed in a more thoughtful way in early summer or late spring? I have outlined who I believe to be responsible for this. This is just another imposition on people, another charge that people have to pay when they are really strapped for cash already. There seems to be charges coming at them from all directions.

We on this side obtained a good deal of documentation under freedom of information requests, which certainly clarified the position for us. We saw evidence of the Department of Social Protection opposing the decision or advising against it. We saw the same advice being given by the Pensions Board. We saw e-mails from lobbyists for the insurance industry looking for pensioners to be cut directly rather than, as the Taoiseach said, to be taken off the fees attached to the pension funds. Is that type documentation available here on the pros and cons of this? Are there any arguments against it? Are there any other ways out? The Minister has gone into this in some detail, but he will understand that when we saw documentation we got under FOI requests we were more questioning of it than we were previously.

A number of brief issues arise. The Minister read a short sentence about the €280 million that he will have to lodge in October. I have some understanding of the rules covering the deficit. If he has to lodge that amount, from where will it be obtained? From what account will he get the €280 million given that we are strapped for cash? I assume that the levy will not have yielded that amount by then. The Minister has said he has made appropriate provision for it and I wonder how will he simply magic that up? I am sure there is some rational answer to this.

The provision in regard to the failure of an Irish authorised company operating abroad is very important. I am glad that has been introduced. I wonder why that has not been done previously and the Minister might enlighten us on it. Was there a failure or was it not spotted? It seems to be a major issue.

I do not know if it is considered a problem but in regard to travel insurance obtained from companies abroad, it strikes me that many citizens may take out travel insurance from foreign owned companies. Are their protections lessened or are there sufficient protections in place? I am not trying to make a political point on this, I simply want to know the answer to that. Has it been considered?

I welcome the Minister's exclusion in regard to health insurance. It is a very volatile area. The pressure is moving from the insurance companies to the individuals and the State when the individuals come off health insurance. That measure will be welcome. It will make some difference to families and it certainly will not disincentivise them any more but obviously this area is a minefield. The Government has its own proposals in regard to health and insurance reform in that sector. We would like to see that debate moving on.

I will not oppose this legislation. Any of the votes or quorums we call will be purely on a procedural basis, but my Dáil colleagues reserve the right to bring forward amendments or to modify our position whenever this legislation comes before the Dáil. I will leave that to them. I would appreciate if the Minister could answer the queries I have about the legislation.

Senator Michael D’Arcy

My colleague, Senator Byrne, always amazes me in terms of how short his memory is. His memory was short about the previous Financial Regulator, Mr. Patrick Neary, the guy who was in office for years who was appointed by the previous Governments, who did not do his job.

Senator Thomas Byrne

We appointed Matthew Elderfield.

Senator Michael D’Arcy

The reason we are in this position is there was no regulation. The former regulator was freewheeling and business was conducted as the company saw fit. As the Senator will note, the 2009 figures for Quinn Insurance show a loss of €905 million, there was a loss of €160 million in 2010 and the loss for 2011 is as yet unknown. That is why we are here. That is why we are passing legislation. That is why we have to deal with the matter at hand.

As one of the primary cheerleaders in the other Chamber, all you were missing was the mini-skirt and the pom-poms——

Senator Thomas Byrne

I was the cheerleader for Matthew Elderfield when the Senator's Dáil colleagues at the time were criticising and castigating him in the local newspapers. I stood up for him.

Senator Michael D’Arcy

As a cheerleader for the previous Government, the Senator stood up for it on national radio and television time and again.

Acting Chairman (Senator Paul Coghlan)

Remarks must be addressed through the Chair. No interruptions, please.

Senator Michael D’Arcy

As I said, Senator Byrne was a primary cheerleader for the previous Government in the other Chamber.

We are here as a result of €280 million being required for the insurance compensation fund. Capitalism in Ireland is unique; when a company makes a profit, it pays corporation tax and the dividend is paid, in whatever form, to the directors or shareholders, but when it makes a loss, it is the State that is required to step in and underwrite it.

We are here simply because there will be a request for a number of years for an amount of money in the region of €720 million. I ask the Minister if the State Claims Agency has examined this issue. It would be prudent that it examine it. I am hopeful €720 million is the maximum figure and that there will not be a need for more funds to be provided. People the length and breadth of the country are stretched and it is appalling that the Exchequer must provide this funding following a request from the Central Bank. However, we appear to have no other option but to provide it.

The moneys are to be recouped by way of a 2% levy on the insurance industry which does business in the State. This is not the first time we have been in this position. It happened previously in the 1980s following the collapse of the PMPA. We know the figures and the reason we are here. While it is stated in section 7(4) that the levy is to be reviewed regularly, it is hoped there will be a point at which it will cease to apply and that it will not become an income gathering exercise. I have not had time to go through the legislation in detail, but I presume it is stated somewhere that there will be a point at which the levy will cease. I would like to think this is a once-off requirement and that we will not have to revisit the issue. I accept that we cannot predict what will happen years from now, let alone decades from now, but we have been in this position before following the collapse of the PMPA. Quinn Insurance has all but collapsed with the loss of many jobs in Navan. However, it continues to employ 1,600 people. I agree with Senator Byrne that the regulator has done a good job. He stepped in and has remained strong in the face of opposition and done the right thing. Doing the right thing is not always easy, but it is what must be done.

The significant section of the Bill is section 7 which deals with contributions to the fund. However, the Minister might provide the House with more detail on sections 1 to 5, inclusive. I would also like more detail on the role of the Central Bank in this regard. It is stated it will continue to be responsible for assessing the fund and that it will determine the levy to be placed on insurers when funding is required. Will a levy of 2% be enough? Can the figure be reduced to 1%? Can those paying insurance and expected to pay the levy be told when it will cease to apply?

The Bill states the Minister has the power to appoint a collector of the levy which will be passed to the ICF. Who is the collector likely to be? How will he or she be selected? Will the Minister receive a list of names from the regulator or the Central Bank?

The Bill also states the Central Bank will have responsibility in respect of the non-payment of the levy. Perhaps we might also receive more detail on this point.

It is stated in the Bill that the levy will be reviewed regularly. Will a date be set for its cessation?

I welcome that Voluntary Health Insurance will not be subject to the levy, as the cost of health insurance has increased a great deal. A further levy of 2% on top of these increases would be difficult for consumers. Given their financial circumstances, many are unable to meet their VHI contributions and opting out.

Near the end of his contribution the Minister touched on the Central Bank supervision and enforcement Bill. We are in this position because of a lack of checks and balances as a result of political interference by senior people. A former Taoiseach did not encourage oversight or regulation and was Reaganist in his views as regards those who should have been doing a far better job than they were doing. I, therefore, look forward to the introduction of the Central Bank supervision and enforcement Bill. We must ensure those in charge have the powers and authority they need to ensure these mistakes are not repeated. The Minister has stated the number of staff in the Central Bank from 50 to 100. Will 100 people to deal with an industry of this size be sufficient?

I welcome the appointment of authorised officers to investigate a company on behalf of the Central Bank. Of benefit has been the decision made by the previous Government to seek expertise outside the State. Such persons will not know the individuals concerned and will thus ensure there will be no return to the old boys' club practice often to be found in the State. To date, Mr. Elderfield has proved to be a good example of a person with expertise from outside the State who doing a good job here. I do not wish to decry the work being done by suitably qualified individuals within the country, but, unfortunately, this is a small country and too many people in certain sectors know each other, be it in the insurance industry and so on.

While I welcome the Bill, I would much prefer if we did not have to introduce it. I am sure the Minister would prefer if the Exchequer did not have to provide this amount of money to the ICF, but we have no other option. I look forward to hearing his response.

Senator Jimmy Harte

I welcome the Minister and thank him for outlining the up-to-date position.

I set up my insurance brokerage firm almost 30 years ago. Any insurance broker operating in the country could have predicted this day would come following the entry of Quinn Insurance into the market. When it entered the market, it massively undercut other insurance businesses. An example would be a shop which might have been quoted a figure of €3,000 by Aviva, Hibernian or FBD and was subsequently quoted a figure of €1,000 by Quinn Insurance. There is a saying one can price oneself out of the market at the top end. Quinn Insurance was pricing itself out of the market at the bottom end and the regulator was aware of this.

Senator Byrne can defend the previous Government, but the dogs in the street knew what Quinn Insurance was doing. Insurance brokers or agents would when asked tell one that they did not know how Quinn Insurance was doing it.

Senator Thomas Byrne

The Senator should raise his concerns with the bank or the regulator.

Acting Chairman (Senator Paul Coghlan)

Senator Harte to continue, without interruption, please.

Senator Jimmy Harte

We did, and with several other bodies. Ordinary people on the street were wondering how Quinn Insurance could do business at a figure one quarter of what massive companies such as Hibernian Insurance, Norwich Union and Axa, companies which have been in business for 200 or 300 years and experienced two world wars and depressions, were offering. They could not match it.

One of the reasons the compensation fund is in place is that there is a need to bail out the Quinn Insurance Group in respect of its property holdings. The accountants for Quinn Insurance Group have a lot to answer for. When ordinary small businesses get into such trouble, they do not have the Government on which to fall back. However, the taxpayer has been underwriting Quinn Insurance for years. The chickens have now come home to roost and we do not have any choice. I regret this because the people who are paying for it are those who are paying house and motor insurance, which are necessities, not luxury goods. People can choose not to go on a holiday and not to take out travel insurance but one cannot afford not to take out house or motor insurance. Mr. Quinn and the regulator knew exactly what they were at and Mr. Quinn decided to dabble in the UK market without due diligence. He had a company, Quinn Life, but I am not sure if it is still operating. The web page for it makes it clear that the value of one's investments may go up as well as down. Obviously, Mr. Quinn did not read this.

Mr. Quinn, who was the head of an organisation, had many friends throughout the country who advised him to think outside the box which is another name for breaking the regulations. The same happened with the banks. The buzzwords coming from America were to think outside the box, which basically meant to break the rules and we would all be better off. At the end of the day, we the citizens are paying for Seán Quinn's foolhardy notions of grandeur. This is a deficit of almost €1 billion which, added to the €3 billion that Mr. Quinn has cost the taxpayer through Anglo Irish Bank, amounts to a total of €4 billion to be picked up by the taxpayer. That amount of money would run a small country. This was a man who stated on television that he gambled €2 playing 25 on a Monday night, yet he did not read his own company's website or listen to the regulator or the regulator did not tell him what he should be doing. I realise this debate has to be guillotined and we do not have a choice. It would be great if we could walk away and say that somebody else or Europe will pick up the tab. We do not have that choice.

Senator Thomas Byrne

That is not about the use of the guillotine.

Acting Chairman (Senator Paul Coghlan)

There will no be use of the guillotine on Second Stage. This is an open-ended debate. Senator Harte to continue, without interruption.

Senator Jimmy Harte

I am not an advocate for the use of the guillotine, but we do not have a choice today. I recognise who should be guillotined, but that is another day's work. We have to move on from this situation. Perhaps the country will learn in future how regulation should be done. As an insurance broker during the years, I know the hoops and jumps that we and others in smaller businesses have had to take in regard to regulation. Many knew this was happening. Eighteen year olds came along to my office and said they could obtain insurance for €600, while the cheapest on the market was €2,000. A red light was flashing, but the regulator was happy to say it was good for the punter that the market was seeing cheaper insurance. They did not see cheaper insurance but more expensive insurance, which is what is happening today, and a compensation fund of €70 million per year. It will be like PMPA. It will go on and on and there will be no end to it. The bottom line is that the Irish taxpayer is funding a lifestyle that Seán Quinn and his company have set up because they felt they were the squire in the manor and could take whatever they wanted and someone would pay for it. It is a sad day when we have to do that. I support the amendment.

Minister for Finance (Deputy Michael Noonan)

I thank the Senators who contributed to the debate on the Bill. I am not seeking to use the guillotine. The request was to take all Stages in the House together. The time pressure on us arises from the fact that the Liberty group will conclude the purchase of the Quinn Group on 4 October. It has to go to the High Court on 4 October where certain questions will be asked. One of the principal questions will be whether it is in a position to cover claims. We all know what the insurance business is about. We all have to pay for insurance for the car and the house and we are familiar with how it works. A prudent insurance company and a solvent insurance company must provide for claims. One pays the premium, but the claims do not arise for years. When the administrator examined the Quinn books, sufficient provision had not been made for claims. That is why we are here today proposing a levy to cover claims in the system and claims that may arise in the future from persons who are covered in respect of, principally, their motor vehicles or their property by the Quinn Insurance Group.

I thank all the Senators who contributed. Certainly, I can understand Senator Thomas Byrne's dissatisfaction that the Bill is going through in one day. There is pressure to meet the 4 October deadline and I have to get it through all Stages in the House and it has to be signed by the President. It is very important, with more than 1,600 people working in Quinn Insurance and so many policyholders who, if the levy is not paid into the fund, will not have the wherewithal to meet their claims. This is an essential piece of work.

The legislation was difficult. Senator Byrne and others may recall much lobbying in the early summer, not from the Quinn Group, although it was lobbying, but from foreign insurance companies in the country. Insurance directives in Europe are complex and when we started to explore what legislation was necessary, we took advice from Europe. In the first instance, the advice we got was not full advice. It appeared at that stage that the levy would have to apply to any insurance policies written in Ireland, even if written for citizens in France or Germany. Regardless of where the risk was in Europe, it appeared as if we would have to levy everything. Members may recall large companies such as Zurich and others in the market saying they could not be levied on their French and German businesses because they were not Irish risk. It appeared that large companies would move out of Ireland, particularly out of the financial services area, because a levy would be applied which, on the face of it, looked unfair but over which we had no discretion because this appeared to be what the insurance directives were saying. This was the initial advice we received from Europe.

The Attorney General explored the advice and subsequently we found there were later amendments to the directive which allowed us to cover insurance risk written in and for Ireland, as I have described, and to exempt from the levy risk written in Ireland but for abroad. It had the effect of ensuring all those jobs in the insurance business in Ireland, specifically those attached to the financial services industry, were secure and would not be affected in any way by the imposition of the levy. By the time we had sorted all that out, we were moving towards the recess and could not bring in the legislation before the summer.

We now have a straight piece of legislation over which we can stand. It is not ideal. I would have preferred it had the Senator got the Bill a fortnight ago to peruse it and we had the Stages on different days, but this was the hand of cards we were dealt and we are doing the best we can with it. I agree it is not ideal and it is not going to be a practice. It is just that on this legislation we were forced into this position.

Senator Byrne asked where the money is coming from that the State is advancing. We are advancing €280 million into the fund because there is only €40 million in it. The annual levy of 2% will come in over the calendar year. I will advance the money from the Central Fund, provision for which has been made, and we will make provision for it in 2012. The money that is going into the fund will be covered by the levy subsequently. The European Audit Office says this is not expenditure but a financial transaction because money is being put in and replaced subsequently in order that it will not kick into the deficit. It is as though it is ring-fenced for that arrangement. As for the levy, we think it will work out over ten years, but it may be shorter or longer.

Senator D'Arcy, in a good contribution, asked how the levy would operate. The Central Bank is the adjudicator of whether moneys are necessary and how much. It is of the view that a 2% levy, which is the maximum under the 1964 Act, is required. However, if the claims were front-loaded and the Central Bank was of the view that they were reducing to a trickle, it could reduce the levy to, say, 1%. It is something that will have to be adjusted in the future. However, according to the administrators, we need more than €700 million. Senators can work that out over a period.

The State Claims Agency is satisfied, and has satisfied me as Minister, that the amount of money being sought now is prudent and that it is not a case of settling lightly with other people's money. We are happy with this. We were concerned because it started at a lower sum and began to creep up. Therefore, we decided to have it independently assessed. We are pretty satisfied now, in general terms, with what is happening.

I think it was Senator Byrne, or perhaps Senator D'Arcy, who asked about travel insurance. If a travel insurance policy covers a period of less than four months, it is covered by the scheme as long as the person has taken out the policy in the State, even if it is from a foreign-authorised company. Thus, if an Irish person takes out a policy in Ireland, regardless of whether the company that writes the policy is foreign or domestic, there is a four-month cover period under the scheme as proposed.

As for the collector of the levy, I presume it will be collected by the Revenue Commissioners in the normal way and passed on to the insurance compensation fund.

Senator D'Arcy asked whether 100 staff in the Central Bank were sufficient for regulating the insurance industry. That is the Central Bank's estimate of what is efficient, but it has supplemented that by adopting the power to bring in people such as actuaries or accountants from outside during periodic peak times in which it needs a particular skill. It is certainly the case that regulation has been improved dramatically.

Senator Harte has a great deal of experience in the insurance industry as he has worked as a broker. What he said about the Quinn Group was the common conversation, particularly if one met people in the insurance business. That was counteracted by the claims of the Quinn Group that there was a new business model that had dispensed with many of the overheads of traditional insurance. Nothing was ever proved until the new regulator intervened and the Quinn Group subsequently went down.

Before I sit down I should deplore the intimidation of administrative staff at Quinn Insurance that has taken place recently, perpetrated by persons unknown, although one might have a shrewd idea who they are. It took great efforts, a great deal of negotiation and the good will of an American insurance company, whose managing director was a man from Armagh who realised the importance of insurance jobs on both sides of the Border, to save the company. Much effort went into securing Quinn Insurance and ensuring it will continue as an insurance company which will grow rather than decline — that is its business plan — and that the claims of people who have taken out insurance with Quinn Insurance will be covered. More than 1,600 jobs are secure, all the way down to Blanchardstown — it is not just in the Border counties. It is deplorable that people who seem to have no great interest in the jobs of the workers would seek to intimidate workers in the way they did. There is always a risk, when one has foreign investors, that when extra-legal activities are indulged in, it will upset them. I do not want to sit down without saying that, because those actions were deplorable. I wish the Garda every success in pursuing the perpetrators.

The total call on the fund is likely to be €720 million in all. It is estimated that the levy, based on current gross premium figures, will raise €65 million per year. As there is €40 million available already, we are looking at a ten-year timeframe. We hope that, as the economy grows and expands, the premium book will also grow, in order that in five years' time significantly more than €65 million will be raised. However, that is difficult to estimate. My note states it may take up to 11 years to work our way through this. Any increase in the level of gross premiums during the period will mean that the amount can be paid more quickly, but there is no promise that this will happen under the Bill. We will be advised by the Central Bank, which is, under the law, authorised to advise on whether the fund is adequate, and we will proceed on that basis.

I thank the three Senators who contributed and thank the House for facilitating me thus far at the end of Second Stage.

Question put and agreed to.