Dáil Éireann - Volume 331 - 16 December, 1981
Insurance Bill, 1981: Second Stage.
Minister for Trade, Commerce and Tourism (Mr. Kelly) Minister for Trade, Commerce and Tourism (Mr. Kelly)
Minister for Trade, Commerce and Tourism (Mr. Kelly): Molaim: “Go léifear an Bille don dara h-uair anois”.
Is é is cuspóir don Bhille seo trí leasú éagsúla a dhéanamh ar reachtaíocht dlí árachais — leasuithe a bhaineann le Cuideachta Árachais Saoil na h-Éireann Teoranta, le ráthaíochtaí onnmhairithe  agus le ráthaíochtaí i ndáil le hiasachtaí ón mBanc Eorpach Infheistíochta.
This short Bill contains three separate amendments of insurance law. The first relates to Irish Life Assurance Company and the Insurance (Amendment) Act, 1938, under which the company was set up. The purpose of the amendment is, primarily, to allow Irish Life to enter the non-life insurance market in Ireland through a subsidiary company. The second amendment refers to section 2 of the Insurance Act, 1953, which covers export credit insurance. It is proposed to increase the aggregate of the Minister's liability under export credit insurance policies from £100 million to £300 million. The final amendment affects the Insurance (Amendment) Act, 1978, which was introduced to allow banks to do certain types of guarantee business, and is by way of confirmation that banks licensed in the State can guarantee loans issued by institutions such as the European Investment Bank for industrial development projects in this country.
Many Deputies will be familiar with the history of Irish Life, but it is worthwhile recounting that the company was brought into being by the Insurance (Amendment) Act, 1938, to take over the business of several existing insurance companies which had run into financial difficulties. The 1938 Act enabled the Minister for Finance to contribute the very large sum in those days of £1 million towards meeting the deficiencies in the funds of the insolvent companies in question. The 1938 Act provided that the business of these companies would be transferred to a special company referred to in the Act as the terminating company, which would, in time, transfer the business to a company known as the Permanent Company. The transfer to the Permanent Company was effected in 1947 and this Permanent Company is now known as Irish Life Assurance Company Limited.
I do not think anyone can doubt that the measures taken by the Government in this case have resulted in one of the major successes in public enterprise. Irish Life is now our largest insurance company with assets in 1980 of over £700  million. These assets, which represent the savings of individual policy holders, have provided valuable investment funds for the economy as a whole. The performance of the company's investments has ensured a continued and sustained growth in premiums to the company. The success of Irish Life's investment policy is a tribute to its business acumen and to the freedom of action and flexibility allowed to the company in such matters. This is essential in the area of life assurance where the company is competing with many other insurers who enjoy this freedom. Thus while the Minister for Finance controls the shares of the company, Irish Life is in practice run on a strictly commercial and independent basis.
Within the past few years there have been important changes in insurance in this country mainly stemming from moves to open up the Irish market as a result of EEC Directives. Already we have seen the implementation of the EEC Non-Life Directive in 1976 which provided easier access to our non-life market for EEC insurers. A similar effect on the life assurance market will emerge when the EEC Life Directive is brought into force shortly. Of course, liberalisation in the EEC works both ways. We gain access to other EEC markets and I would certainly like to see Irish insurers take more positive steps to expand into these markets.
Irish Life itself has sought to diversify and extend its activities, for example, into overseas markets. The company has recognised the desirability both for its own investment portfolio and from the point of view of extending the range of insurance services to its clients, of being able to engage in the non-life insurance market. Being able to compete in both markets will strengthen the company's domestic base. Under Irish insurance law, and indeed in an EEC context under the First EEC Life Assurance Directive, it is not possible for a company which is authorised, for example, to transact life insurance, to engage in non-life insurance, and vice-versa, except through a subsidiary company.
 There are several examples of such subsidiary companies already in the Irish market. However, the Insurance (Amendment) Act, 1938, places an even greater restriction on Irish Life by providing that it can only carry on life assurance business and it cannot, therefore even by way of subsidiary company, engage in non-life insurance. The basic purpose of the first section of the Bill is therefore to remove this restriction and allow Irish Life to establish or acquire such a non-life subsidiary. This does no more than place the company on the same footing under insurance law as any other life insurance company.
Deputies will know that Irish Life has made a successful offer for a majority holding in the share capital of Church and General Insurance Company Ltd., which has been in business since the early 1900s. This offer was conditional on the enactment of legislation enabling Irish Life to make the necessary changes in its memorandum and was also subject to a decision by me not to make an order under section 9 of the Mergers, Takeovers and Monopolies (Control) Act, 1978. As I mentioned in the Seanad, I have decided not to make such an order and I am allowing the take-over to proceed.
I am confident that this new partnership between Irish Life and Church and General will redound to the benefit of the policy holders of both companies. Church and General in the recent past have expanded their business considerably, underwriting risks other than those related solely to Church interests. There is every reason to believe that the take-over by Irish Life and the strengthening of Church and General's base, which this will provide, will enable this expansion in business to be maintained and will help to increase the share of the insurance market underwritten by native Irish offices. For Irish Life the acquisition of Church and General involves a closer relationship with a continental insurance company which has a substantial equity holding in Church and General. This connection with a leading continental insurer should benefit Irish Life in any plans to extend operations in that market. I am  hopeful that Deputies will agree that this take-over is indeed a welcome move, involving an important strengthening of the native Irish interest in insurance, and the prospect of involvement in the European insurance field.
Finally, still on the subject of Irish Life, the Bill also provides in section 1 for two further slight amendments to the Insurance (Amendment) Act, 1938. The first will enable certain purely technical changes to be made in the memorandum of association of Irish Life, to bring the description of life assurance contained therein into line with the EEC Life Assurance Directive. The second will allow Irish Life to delete certain spent provisions from their memorandum. These latter amendments which arise out of the particular wording of the 1938 Act are basically of a technical nature and do not make any real change in the company's position.
Section 2 of the Insurance Act, 1953 enables the Minister for Trade, Commerce and Tourism, to give guarantees with respect to the insurance of risks in connection with exports. Under the Act, the aggregate amount of the liability at any time for principal moneys in respect of export guarantees was set at £2 million. With the sharp growth in our exports since then, this figure has been successively amended, reaching the present limit of £100 million in the Insurance (Amendment) Act, 1978. Already, however, this latest limit is in danger of being breached. At the end of 1980 the actual aggregate of liability stood at £68.1 million. the opportunity is being taken in this Bill therefore, to amend the relevant Insurance Act and increase the present limit to £300 million. I know that the size of this increase is large, but it has been set at this level so as to keep pace with the expanding value of our exports and to remove the need for further upward adjustment of the limit for several years.
The availability of export credit insurance is an important asset to our exporters enabling them to minimise the effects of a wide range of commercial and political risks involved in exporting. The presence of an export credit insurance policy is also of considerable value as security  with banks when the exporter wishes to raise working capital. The recently introduced export credit finance scheme for goods sold on short term credit bears testimony to this. The scheme is proving to be very attractive to exporters and in itself will encourage greater use of export credit insurance.
I am sure the House will agree that against this background the increase now proposed in the State's liability is a price worth paying to maintain this important export support.
The final provision in this Bill confirms that licensed banks in this country can guarantee loans made by institutions such as the European Investment Bank to industrial development projects in this country. The Insurance (Amendment) Act, 1978, allows licensed banks to undertake certain types of guarantee and suretyship business specified in the Act, which were previously regarded as insurance business. Unfortunately certain doubts have arisen as to whether, within the exact and very specific terminology used in the 1978 Act, licensed banks are allowed to guarantee loans from the EIB. The EIB requires guarantees for its loans and it was the intention in 1978 to allow such loans, amongst others, to be covered by bank guarantee. In order to put this matter beyond any doubt it has been decided to amend the 1978 Act in the manner set our in section 3 of the Bill. The provision of EIB loans is important for this country given our development needs and I feel that Deputies will be willing to agree the small amendment provided for in section 3 of the Bill.
Finally, before commending this Bill to the House, I may say that it has been the intention for some time to undertake a complete overhaul of Irish insurance legislation in general. This exercise is complex but is well advanced and I hope to introduce the necessary amending legislation fairly soon. For this reason, the present measure has been limited to the few specific items for which there is an immediate need and which could not await the finalisation of the major Bill now being processed.
I recommend this Bill to the House and I am hopeful that Deputies will be  agreeable to enabling the Bill to be passed speedily. Molaim an Bille seo don Teach.
Mr. O'Malley Mr. O'Malley
Mr. O'Malley: I have no objection to the principle of this Bill. However, I did make some points in relation to it yesterday in the discussion on the guillotine motion, in so far as it was allowed, to which I had hoped the Minister might advert today, particularly in the light of the extremely short time we have to deal with this Bill, now 35 minutes only. Unhappily he saw fit not to and in fact gave this House an almost exact regurgitation of the speech he made in the Seanad.
Mr. Kelly Mr. Kelly
Mr. Kelly: That commonly happens.
Mr. O'Malley Mr. O'Malley
Mr. O'Malley: It is a pity that it happens, particularly in present circumstances because it is an insult to the House. We are able to read the Seanad debates if we have any interest in them. In view of the fact that there have been fairly serious developments in this Bill since the Seanad debate — and I am sure the Minister knows what I am talking about — and in view of the fact that the company have expressed some concern about some aspects of the Bill to which I adverted yesterday, I would have hoped that they might have been dealt with by the Minister rather than the rather flippant way in which he just read out his Seanad speech with some minor amendments.
The history of this Bill has not been dealt with very satisfactorily by the Minister. It has quite a history — I do not know that it is necessary to go into it all — at least some of which might be mentioned. Early this year the Irish Life Assurance Company Limited had come to a provisional arrangement with the shareholders of the Church and General Insurance Company whereby a certain type of transaction would be carried out between them. When the Government's consent was sought to this I advised the Government against it on the grounds that it was diluting the State's interest in the Irish Life Assurance Company Limited and the Government agreed and did  not accept the proposal put up. I then advised the Irish Life Assurance Company Limited that we had no objection in principle to the Church and General being taken over but that they should do it by way of ordinary acquisition for cash rather than giving away their shares and diluting the interest of the Minister for Finance below 75 per cent, which would have been the effect of the original proposal. The Irish Life Assurance Company Limited then went ahead with the takeover of the Church and General Insurance Company, not quite on the lines I had envisaged because they are not purchasing the entire share capital, they are in fact purchasing 60 per cent of it, and the existing shareholders retain, pro rata, the 40 per cent. I suppose there are some advantages in doing it that way. Perhaps there may be some advantages, particularly as it is a small company, to take it over completely. However, that is not a point about which I would make any great issue.
Where the issue does arise is on the rather confusing wording of section 1 (2) of this Bill as drafted. It allows the Irish Life Assurance Company Limited to make certain changes in their Memorandum of Association. Clearly there would not be any objection to the changes that are necessary to implement this transaction which has been agreed with the Church and General and which is to the benefit of both the Irish Life Assurance Company Limited and Church and General. But what concerns me, and I think concerns the House, is that the method by which this subsection is drafted makes no reference to the single transaction with the Church and General but gives a general power to the Irish Life Assurance Company Limited to form any subsidiary they wish in life or in general insurance, or to take over any company they wish in life or in general insurance either here or abroad. I have no concern about what the Irish Life Assurance Company Limited do abroad — the more they can do abroad the better. For several years I encouraged Irish insurance companies to increase their business and I am very glad to see the Irish Life Assurance Company Limited doing that. Therefore I shall  make no further reference to their ability to operate abroad, to acquire companies abroad or to form subsidiaries. Likewise, since they are the major life insurers in this country I have no great objection to their forming other life subsidiaries, if they have to do so, for example for unit-linked purposes or whatever. That is of no great concern to the House — if they feel it necessary to form other life companies — because no doubt the other life companies will be run as the Irish Life Assurance Company Limited are, will be profitable and will put nobody at risk.
Therefore, we narrow it down to one category, that is the unfettered ability of the Irish Life Assurance Company Limited to acquire or to form a subsidiary to carry on in Ireland non-life business. I have no objection to the proposal in so far as it extends to the Church and General Insurance Company, but my feeling is that section 1(2) should confine the power to the specific case of the acquisition of 60 per cent of Church and General because if the Irish Life Assurance Company Limited are to engage in other general insurance business here that is something that should be brought back to the House. In the Seanad, although the debate was short, quite a proportion of it was devoted to the whole vexed question of motor insurance in this country.
Unhappily the Minister did not make any reference at all to that in his statement today. This is a great pity because motor insurance is really the kernel of this particular crux. There has been constant pressure from certain people both inside and outside the House, for many years to have the State take over motor insurance. It is regarded as unsatisfactory; it is costly and it is not available to some people who are adjudged to be particularly high risks. Successive Governments have resisted that move. I know I did on several occasions and I heard the present Minister do so on at least one occasion since he assumed office and do so with some vehemence. However, we cannot speak for future Governments, particularly if the legislative power is given to enable the State to become  involved. Up to now one of the excuses a Minister had was that the State had no power to do this. If this subsection is passed in this form the State will have power. It is a matter that should get considerable consideration, not the kind of consideration that is available between now and 11.30 this morning.
This is not a Bill I want to make any fuss about but it is a Bill that is of considerable importance to the financial affairs of one of the largest and most successful State enterprises in the country. It is putting the financial strength of that enterprise in some jeopardy by putting them in a situation in which they may well be forced by public pressure on some future Government to cave in and to take on the bulk of motor insurance in this country or perhaps all of it. One does not have to be an expert on insurance to realise the situation in which the policy holders of the Irish Life Company would be placed if their policies had to carry that burden.
This principle of this point was recognised by Senator Whitaker in the Seanad. He talked about the traditional division here between life and non-life companies and said that the first Bill he had ever dealt with, as a young civil servant in the Department of Finance, in 1938, was the Insurance (Amendment) Act, 1938, which we are amending here and for that reason he had a good recollection of it. The reason why that Act and the earlier Act of 1936 and subsequent Acts in this country and in the EEC have always sought to separate life companies from non-life companies is that there has always been a fear that if they carried on the same business the non-life side, which is traditionally not very profitable and often loss-making, as is the case in the Irish motor insurance industry would pull down the life side of the business and would either bankrupt it or would render the outturn of the life policies of policy holders less profitable for them than would have been the case if the life business had been operated on its own. That law was not enacted in 1936 and constantly re-enacted without good reason. There was good reason for it and when the EEC make amendments in it, as they  are now proposing to do, they do so with great caution and on the basis that separate funds should be maintained for life and non-life business and so on.
In this Bill we are being asked to accept a situation in which something that is notoriously unprofitable, the Irish motor insurance business, potentially can be taken over by Irish Life. Irish Life do not want that and it would certainly do their business no good to be in that position. For that reason section 1 (2) of this Bill should be amended to ensure that unfettered power is not given to the company to carry on non-life business in Ireland other than this acquisition of the Church and General. I am suggesting that not because I want to limit the company's powers but because I want to preserve the company from being put into the position of having what would be in insurance terms, a horrific amount of unwanted business imposed on them at some future time. It is a very valid point to make and I have reason to know that the Irish Life Assurance Company themselves take that point and certainly do not want to be put in the position of being potential takers-over of some company that might fail in the future.
One has to bear in mind that motor insurance has not been popular with insurers generally, with one exception. We have the unfortunate, unbalanced situation here that between 50 and 60 per cent of the motor insurance risk is carried by one company. If the Irish Life Assurance Company found themselves in the position in a couple of years that they were under public pressure and perhaps Government pressure to assume a large part, of perhaps all, of the motor insurance risk here then inevitably the company as a whole would find their interests prejudiced and their policy holders, who had taken out policies in good faith on the basis that it was a life company only, or on the basis that it was a life company that was taking a majority interest in a prudently run and well run and profitable general company like the Church and General, would have every reason to feel aggrieved at the change in the company situation, a change which they could not  have foreseen when they took out their policies. Therefore, paragraph (b) of subsection (2) of section 1 should be amended. It is not easy to amend it as it stands. It should be reworded to allow the takeover on the basis that we have discussed the Church and General, to allow the company to promote subsidiaries or to acquire subsidiaries abroad in an unlimited way and to allow them to promote subsidiaries on the life side in Ireland in an unlimited way but to confine their non-life activities in Ireland to things that were authorised by legislation or, if the Minister wished, by ministerial order. Preferably it would be by legislation. I have tried to draft an amendment to the section as it stands and some of the paragraphs in subsection (2) would have to be removed and redrafted. I understood that this exercise was being carried out and I do not know whether the Minister intends to put down an amendment. I can only presume that he does not; otherwise he would have mentioned it already.
Mr. Kelly Mr. Kelly
Mr. Kelly: I thought it right to wait until the Deputy had made his case before adverting to this.
Mr. O'Malley Mr. O'Malley
Mr. O'Malley: I am sure the Minister would agree that if ever there was a Bill which should have a Committee Stage it is this one. Ideally a Committee Stage debate should be held some days after Second Stage.
Mr. Kelly Mr. Kelly
Mr. Kelly: I know it is not very satisfactory to the Deputy but if he would give me the opportunity to reply we might be able to agree.
Mr. O'Malley Mr. O'Malley
Mr. O'Malley: I am very glad to hear the Minister say that. There were a number of other matters to which I wanted to refer but I need not do so if he wishes to reply and on the assumption that we will have a Committee Stage.
Mr. Kelly Mr. Kelly
Mr. Kelly: I could give a reply lasting between three and five minutes, not more.
Mr. O'Malley Mr. O'Malley
Mr. O'Malley: I will skip the other matters to which I want to refer but I wish to raise the matter of motor insurance which is central to this Bill, as was  mentioned in the Seanad. I have many times made certain suggestions in regard to the high cost of motor insurance but my suggestions were not fully listened to, although to some extent they were. The high cost of claims results in very high premiums. The cost of claims is due to a number of things, one being the legal system and the extraordinary equanimity with which insurance companies who finance most of the actions in the High Court allow this system to continue, although they must know that it is financially crazy. The great majority of cases are not settled until they literally reach the doorstep of the court. Once they have their briefs in their hands they will talk settlement in the round hall of the Four Courts.
Dozens of routine motor accident cases are dealt with every day. There is no law involved and it is usually just a question of assessing damages. It is the kind of work which in 95 per cent of cases could be carried out by a clerk of reasonable experience and moderate competence, as would be the case in any other country. Instead of that, no less than eight lawyers have to be engaged, two senior counsel, one junior counsel and one solicitor on each side to settle the case in the round hall of the Four Courts a few minutes before the case is due to be heard.
It is no wonder that we find such difficulties in the area of motor insurance today in the face of that kind of situation. I thought that we might be able to deal with that situation by legislation but apparently it is very difficult to do so. The insurance companies who pay these heavy costs could put a stop to it but they seem to have had it impressed upon them that this system is in some way sacrosanct and that they cannot intervene in it. If cases were settled at an early stage and if this unnecessary panoply of lawyers were done away with there would undoubtedly be a substantial saving in the expenses incurred by motor insurers which in the last resort are carried by drivers.
There were several other aspects with which I wanted to deal but in view of the statement by the Minister that he wishes to reply and that we will have a Committee  Stage I will be glad to give way to him.
Minister for Trade, Commerce and Tourism (Mr. Kelly) Minister for Trade, Commerce and Tourism (Mr. Kelly)
Minister for Trade, Commerce and Tourism (Mr. Kelly): I completely accept the points made by the Deputy in regard to the unattractive nature of motor insurance and completely share his point of view, which I have often expressed myself, in regard to the State having its arm twisted by political or public pressure into taking over something which is bound to cause it heavy loss.
I see the force of what the Deputy was saying regarding the form of subsection (2) of section 1 but I think he was a little graceless to fault me for the shape of the speech with which I introduced Second Stage. I thought it only right to let him make his case, even though I had an inkling what that case was. I did not hear his speech here yesterday but I inquired whether he had adverted to the Insurance Bill and on learning that he did so I at once got a copy of his speech. Although by that time it was after office hours, I had the officials advising me contacted at their homes and I met them very early this morning in order to consider and make sure I had not misunderstood the substance of his point, which he did not outline yesterday in the same detail as today. I have a suggestion in the form of an amendment which I will circulate now, if the House will permit, and which should cover the point the Deputy raised.
Regarding Deputy O'Malley's last point, I do not think the insurance companies are fully in control of the legal costs situation. I can see the reason for his indignation about the scene in the round hall of the Four Courts but a very experienced barrister friend told me recently that his experience with certain very big companies was that they would not take their own counsel's advice to settle proffered at an early stage in the case before anyone put on a wig and gown, and that they pig-headedly go ahead and fight and end up being decreed for a sum substantially larger than that for which they might have settled originally, as well as incurring the legal costs to which the Deputy referred. Apart  from that side, I do not think legal costs are completely within their control because as long as the plaintiff can retain his panoply — if he is successful his costs will be assessed on the basis that he was entitled to them — the insurance companies must match that kind of team.
There are other things which could be done about motor insurance and I hope the committee which is now sitting will produce some useful suggestions.
Question put and agreed to.
Dáil Éireann 331 Insurance Bill, 1981: Second Stage.