Seanad Éireann - Volume 117 - 14 October, 1987
Insurance Bill, 1987: Second Stage (Resumed).
Question again proposed: “That the Bill be now read a Second Time.”
Mr. G. Reynolds Mr. G. Reynolds
Mr. G. Reynolds: I have dealt with some sections of the Bill, but I would like to make inquiries on other sections. Section 40 provides that an insurance broker must keep a separate bank account. It seems to be idealistic to keep a separate client account. If an insurance broker keeps a separate client bank  account is he entitled to take out money for overheads, to pay staff, or can the money be touched? If the money cannot be touched except in dealings with an insurer, it is an interference in the running of a business. It is a good idea, but it may not work realistically. Section 41 deals with insurance agent's qualifications. I agree with this but I would also like to see added to it the same requirements for recognition of insurance brokers contained in the Third Schedule. It is important that agents should be covered by the same principles basically as the insurance broker. Section 41 seems quite loose compared with the requirements for insurance brokers. It is imperative that a watchdog body should be set up to look into how an insurance broker or an insurance agent is running his business. It is fine for the Minister to have all these powers, but the Department cannot be expected to implement them effectively. A body should be set up under the Minister's direction and given specific powers to find out how people are looking after their businesses.
I would like to make one final comment on how building societies deal with insurance. The previous Government and, in particular, Deputy Boland then Minister for the Environment, provided legislation to stop an unfair system being used by building societies. For example, when a client applied for a loan from a building society the society stated that he must insure with a certain company. What happens now is that if a client is insured with a different insurance company from that recommended by the building society, the client is asked to pay a £25 reading fee to look at the insurance policy. That is very unfair and the Minister should look into it.
Mr. Fallon Mr. Fallon
Mr. Fallon: This Bill is long awaited. It has been described as the most important Bill for the insurance industry since 1936. I would like to think the results of this Bill will be of benefit to the policyholder, the intermediaries, the Government and all who have an interest in bringing the industry forward from strength to strength in the years ahead.
 Basically the Bill refers to three areas: (1) the Minister is seeking additional legislative powers in regard to the supervision of insurance companies which is proper and correct; (2) the regulation of commissions which I will refer to at a later stage in this contribution; and, (3) the regulation of insurance intermediaries. While that is very important for the insurance industry, the man in the street is not very much concerned about it. He is concerned about the availability of cover, whether he can get cover at the right price, and whether he can trust the insurance company or the broker, which is very important. That is his main concern in this area of insurance. As a nation we are very much aware of our legal rights. We are living in a litigious environment. I have seen claims in the recent past which have amazed me. Claims against public liability which I thought could never be followed through were followed through and were successful. I can remember some 20 years ago investigating a claim with Athlone Urban District Council. A young boy broke into the abattoir, stole the humane killer and the bullets and injured his eye. He received an award. I would have imagined that could not have happened at that time, but it is happening more and more at present.
We are living in a very legalistic and litigious environment which has a direct adverse effect on insurance costs which the public at large have to pay. There may be some savings for the policyholder as a result of this Bill. The Courts Bill which will come in this session, the establishment of a book of quantum of damages to be used as a guideline in addition to the abolition of the two senior counsel practice and the implementation of the Barrington report should create a greater awareness on the part of the public. All of these things should help to bring premiums down. We can say with certainty at present that our system of awarding compensation to injured people is slow, inefficient and unfair. Anybody who goes to the High Court and listens to a case will find very quickly that there is no such thing as liability, whether there is liability  or not. It just does not count. An award is made, full stop. It is very expensive. While all of these things are for another day, it is of no harm to refer to them in this Bill.
Employers liability cost for manufacturing industry in Ireland is now £30 million higher then comparable costs in Britain. Funds for manufacturing and, indeed, for trade generally which might be used to create more jobs or to increase output are now being used for increased public liability and employers' liability insurance. I would like to make this small point, but a valid point. Last year in Westmeath County Council we almost had to have a second estimates meeting because of the increase in our public liability and our employers' liability premiums. Where that exists, people are concerned; the Government are concerned, and understandably so. The whole insurance scene has changed dramatically over the years. I can remember years ago when insurance brokers — and large ones in particular — could get credit on the basis of six, eight or ten months. Business was canvassed on the basis of the length of credit available but, unfortunately, or maybe fortunately, the year of fiscal rectitude has arrived with a bang. Credit is certainly limited; commission is reduced; and the whole insurance industry has changed dramatically in that period.
The Minister and the Government rightly in this Bill have attached a lot of importance to the question of the examination of insurance companies' affairs. I was not aware until quite recently that within the Department a number of companies were selected for study by outside consultants in regard to the examination of their annual returns. I welcome this. I can remember saying at the time of the PMPA collapse that, had the people who investigated the Vehicle and General in England, a large insurance company with £25 million motor insurance at the time, investigated the PMPA, they would have been asked to stop trading years before it actually happened. Therefore, it is right and proper that the Government should  involve themselves in this area and involve themselves in a very real and practical way. It is right that the Minister, as he does in section 15 of the Bill, should take unto himself power to intervene in the running of the business of an insurer which has encountered financial difficulties, or which is known to have encountered financial difficulties. Very often within the business it is known what is happening long before it reaches the desk of the Minister, or the Government become aware of it.
Although not perhaps a matter for insurance brokers, one aspect of the Bill which I welcome is the fact that I believe the kiss of life might well be given here to the industrial branch of assurance. It is a business that has been with us for perhaps 100 years. The penny policy has buried many an Irishman. It was the cornerstone of the development of companies like New Ireland and Irish Life. The Minister knows it has been a neglected area of life assurance over the past few years, which is a pity. Certainly, when you consider what that type of industrial branch assurance did for the companies I referred to and the type of money Irish Life took in in the last single premium bond which they advertised and which was so successful — hundreds of millions of pounds — and compare it with the good old days or perhaps the bad old days of the penny policy, it is certainly a contrast. I am glad it is not neglected in this Bill. I am glad it is being revived and getting the kiss of life. It certainly needed to be revamped in a real way and that seems to be happening in this Bill. Change in industrial branch assurance is necessary. We know that the value for money of industrial assurance has declined but, nonetheless, the changes which are now being made will be for the benefit of that type of business within the life assurance field.
We might well ask: why should the Minister have an interest in commissions? As he explained, it is the policyholder who will pay eventually for commissions but, at the same time, I have to make this point. For a broker, operating as he does, with a staff, an  office and heating, paying 5 per cent on commissions is crazy. I would like to think that, when the Courts Bill is enacted and we have a better insurance climate, a more profitable insurance climate, the Minister, rather than perhaps taking commissions away, may decide that an over-riding commission of 5 per cent or 7½ per cent, or whatever, might well be desirable. In the future brokers might look for more commissions for their business.
The whole area of bonds — and I am not referring specifically to any section — has caused some concern. I always felt it was unfair to ask for a £100,000 consumer bond from a broker with, say, £½ million of a turnover and the same bond from a broker with £10 million of a turnover. That seems wrong. Therefore, naturally I am pleased that the Minister has indicated that this might be dealt with in another way. I welcome this change which I hope he will make on Committee Stage.
The position of insurance agents and brokers is well documented in the Bill. That is a worrying aspect of the Bill because the treatment of tied agents as against the treatment of brokers is somewhat discriminatory. First I will talk about the tied agent. While many people have different ideas of what tied agents are, I have no doubt that in the future the Bank of Ireland will have their bank managers purely as tied agents. Any of them who give business to Irish Life or Abbey Life or Standard Life will have to suffer the consequences. Obviously they want the business for themselves, which is reasonable and fair. I am not talking about that type of tied agent. If I wanted to I could advertise in the area of life assurance and earn £10,000 in my spare time. I could then bring in housewives, Army personnel, and so on, give them a crash course in insurance and let them loose on an unsuspecting public selling large single premiums, mortgage protection, endowment policies and so on and they would be paid a commission. That is not doing the industry any good.
When I did my ACII examinations the  most important principle I found was uberrima fides, of utmost good faith. Utmost good faith must still continue to be the very basis of all insurance contracts. Unless people and agents have a love for the industry and have an awareness of the industry, we will have cowboys and that is what is happening in many cases. We have to look at that tied agent. It is wrong that people like that should be let loose to take premiums in the manner I have described. The question of broker versus agent within the Bill is obviously a matter for debate. I regard myself as a typical country insurance broker with an interest in the business, with a love for the insurance industry because I realise what it means to industry generally. It is regarded as being very important in the whole industrial life of this country and of the world.
This Bill, as it stands without amendment, would cost me a lot of money. There is the professional indemnity bond and there is a certificate of solvency. There is the consumer bond and membership of an insurance brokerage body. I accept that I do not have to be, but if you are an optician and there is an opticians' society, you like to be part of that society. If you are an ophthalmic surgeon and there is an ophthalmic surgeons' society, you like to be a member of that ophthalmic surgeons' society. Therefore, brokers like to be part of their organisation and help to build it up and run it. The tendency will be — if people remain brokers — to try to remain members of these brokers' associations.
Section 7 of the Bill refers to fees which are not defined. I must conclude that if a brokers' organisation has, say, 200 members the Minister for Finance can say he wants £500 a member. That would be put onto the insurance broker. It will cost the small, average, country broker a lot of money before he writes one single form. Compare that with the agent who has no responsibility within the Bill. He is looked after clearly by the insurance company. There ought to be a greater differentiation. I anticipate that many of the insurance brokers I have referred to  will cease to operate as brokers and will go back to being agents. They will have none of the costs we are talking about and will trade merrily with four companies. They might well be able to do it. I would like a closer look to be taken at the role of the agent and the number of agencies an agent can actually possess. My own view would be that it should be one life and one general. Otherwise, he is prone to the accidents of any broker. He is prone to professional indemnity. He still has the same problems.
An effort must be made to control and make as small as possible problems an agent can create for himself, for the policyholder and for the consumer. The question of an agent, whether it be one life and one general, having a bond or PI is a matter for debate but, one way or the other, if they do not have it, and it is not required within the Bill, the company who appoint these agents will have to give very strong guarantees that they will take over the full liabilities of the agent and if there are misdemeanours that they will be honoured by the insurance company. Otherwise they should be treated in the same way as the broker and have the professional indemnity and the bond and all that goes with it.
There are other sections in the Bill which we can talk about on Committee Stage. The Explanatory Memorandum — which I find quite excellent — reads as follows:
Section 31 prohibits commission payments being made in the form of benefits-in-kind or loans.
This I agree with totally.
It also prohibits any commission being paid until the premium has been received by the insurer.
I do not know what is meant here. My own definition — and I have read it twice for many weeks of the year — is that the normal way for commissions to be paid is on a net basis. In other words, if the account of company X is for £5,000 — and let us assume it is a 10 per cent commission — that is £500. The insurance representative or the company  get £4,500 rather than getting £5,000 and are paid back £500 by the company. That is something we can look at on Committee Stage. There is a lot in the Bill that we can talk about on Committee Stage. As I said at the outset, we have waited for this Bill for a long time. It is reckoned to be the most important insurance Bill since 1936. Therefore we must not rush into it. We must take our time on Committee Stage. We must examine the Bill in great detail and hopefully we can produce a Bill which will give the insurance industry confidence, give the policyholder, the Minister and all the interested parties confidence that they can go forward for another 50 years in the knowledge that they have a worthwhile Bill which we can all stand by.
Mrs. Fennell Mrs. Fennell
Mrs. Fennell: I would like to take this opportunity to welcome the Minister of State to the House. It is the first time I have been here when he was in that chair. As he was my colleague in the constituency and I hope will be again, I wish him well.
In this debate I have noticed that the same points, which are predictable, are being made by most speakers. Possibly I will go over ground covered by other speakers on the last day of the debate. In introducing the Second Stage of the Bill the Minister mentioned in the preamble the abolition of juries in personal injury cases. This is something which has been debated and discussed for quite some time. Most people will welcome a change. I know it does not arise on this Bill but it is appropriate to make a change in it. It will reduce the tendency which has developed to have huge awards made by jurors who have been motivated more by emotion than by logic and common sense. It will also help to reduce the legal costs which I believe amount to approximately 20 per cent of overall settlement costs in third party motor claims for personal injuries which have done much to drive up the cost of motor insurance. The existing practice of a junior and senior counsel and a multitude of legal persons involved in setting up and handling cases for both the defendant and plaintiff will  presumably be unnecessary. While this will not be welcomed by some sections of the legal profession, it should nevertheless get an almost universal welcome.
In our desire to reduce costs we must, of course, make sure that victims of personal injury obtain justice. This means adequate and fair compensation which the jury system was, in theory, designed to deliver but in practice jurors, ordinary, unqualified but worthy people, 12 just men and women, are unable to assess damages fairly. It is to be hoped that, under any new arrangement, adequate and workable safeguards will be incorporated and qualified assessors will be available to advise a judge in a case and help him in assessing the extent of injuries and arriving at sensible and fair compensation on a basis that makes sense. Handling out large cash sums to victims in personal injury cases, most of whom are not used to handling large sums of money, has often resulted in the past in cash being frittered away by bad investment, whereas the payment of an annuity adjusted to a rise in living costs and changing health care needs would be a better solution. The present situation has given rise to certain cases where a victim, perhaps suffering from paralysis as a result of an accident, has been helped to an early grave by relatives and indeed friends anxious to get their hands on the award money. This has been achieved by turning the unfortunate person on to alcohol and providing an almost endless supply of it with inevitable and tragic results.
Regarding the abolition of jury awards and the overall system of compensation I recommend the Minister and everyone else in the House to read the excellent O'Connor report on the Commission of Inquiry into Motor Insurance which appeared in the seventies. This report made some very worthwhile recommendations on the subject of paying compensation and discussed various methods which would be an improvement on the present arrangement. The commission report details the practice in other countries which I believe have merit.
 Turning to the Bill before the House, the life insurance and general insurance industries represent two of the major financial areas in our economy. I welcome the motivation behind the introduction of this Bill but I feel that in some respects the Bill does not go far enough in consumer protection as it would seem merely to put financial burdens on reputable intermediaries. It does not take the opportunity, which is so readily afforded, to introduce rules and sanctions which would protect the public against wrong information and dishonest selling. I believe these could easily have been written into the provisions of this Bill. I also feel that some of the restrictive provisions in the Bill will actually work against the consumer's interest in the long run by restricting freedom of choice. I will elaborate on these two points when I deal with the appropriate sections.
The sections which deal mainly with giving the Minister extra powers to supervise insurance companies are to be welcomed and are long overdue. Dealing with section 22 which refers to industrial insurance policies I am somewhat concerned about various abuses which take place in this area. It is generally agreed that industrial life policies are bad value from the client's point of view. This is due to the very high cost of servicing this business. While the amalgamation of the ordinary branch and industrial branch funds increases financial stability, it may introduce the danger of the ordinary branch business subsidising the industrial branch business which would not be to the benefit of ordinary branch policyholders. I know that the operation of an industrial branch is a marginal activity with some companies who, I suspect, would be quite happy to divest themselves of that portfolio. The Minister might examine the possibility of encouraging a merger, a takeover of this type of business by companies who wish to do so.
As far as I know, all of the companies which operate industrial branch accounts also carry out ordinary branch business. There is no doubt that the value for money offered by ordinary branch is  infinitely superior to the industrial branch from the consumer's point of view. An important opportunity now presents itself to incorporate in the Bill regulations which would insist that purchasers of ordinary branch insurance should also be shown the benefits under the ordinary branch policy for the same overall annualised premium when industrial branch representatives are selling policies. This regulation could be easily enforced by making it mandatory to have a declaration signed by purchasers confirming that benefits had been fully explained to them under both forms of insurance and a declaration to this effect could be either held in the insurance company's office or contained in the industrial branch policy book.
Section 28 deals with the insurance compensation fund set up at the time of the PMPA difficulties and also called upon at the time of the difficulties with the Insurance Corporation of Ireland. It appears that the purpose of this section is to introduce a very significant reduction in the present levels of protection offered by the compensation fund. I hope that in the future a situation will not arise where an insurer operating in the State will be insolvent. But if it should occur, it would seem to be unfair to limit the compensation which claimants will be paid to 65 per cent of the amount of unsatisfied claims. It is hard to understand why such a move should be taken and it would seem to be against the public interest. I hope the compensation fund will be open to all. I would be glad to hear the Minister's view on this matter.
Part III of the Bill, sections 30 to 36, deals with the standardisation or regulation of commissions paid to insurance intermediaries. The emphasis would seem to be on controlling the earnings of intermediaries rather than controlling their behaviour. Most insurance brokers are decent and honourable business people. It would be very worthwhile to introduce some safeguards into the Bill which would protect the public from inflated and over-optimistic claims in the field of investment. Possible malpractices could be significantly reduced by a system  whereby the official illustration or quotation form of the appropriate insurance company whose rates are being quoted must be used and that a copy of this quotation, signed both by the purchaser and the intermediary, should be sent to the insurance company accompanying the proposal form and other documents. A facsimile of this copy should be then incorporated in the policy which would be sent to the client. By this method the insurance company could police the activities of brokers and the practice of hyping up figures would be stopped.
It would be appropriate to include some regulations regarding advertising by insurance brokers particularly in the life insurance investment field. At present and for many years some brokers have placed newspaper advertisements quoting returns which, while accurate for short periods of say one or two years, were potentially misleading for medium or long term investment purchasers. In this connection I know that the Irish Insurance Federation recently brought out recommendations binding member companies. These are to be welcomed because they make it mandatory that unified growth rates be used in illustrations. However, the extension of this type of approach would control the type of advertising which insurance brokers engaged in.
Finally, I would like to reiterate the concern expressed by Senator Hogan and other Senators that this Bill will affect the smaller brokers. This legislation could either put them to the wall, with a loss of jobs, or set them thinking about becoming agents. This Bill does not take sufficient account of the professionalism and integrity of numerous brokers who are decent, fine people and give a good service.
The broker is, in the vast majority of cases, a professional man or woman who knows the products he or she is selling, who realises that to mislead the client — and it is quite easy to mislead people because insurance business is a very complex, technical area — is a very shortsighted approach to their business. They are experienced in selling a cross section  of products and yet this Bill maintains the role of agents. They can be bank managers, building society managers or auctioneers, people whose main vocation in life would be far removed from studying and understanding the insurance industry in general. These people cannot be and are not equipped to deal comprehensively with clients. I regret that no measures were taken in the Bill on this matter.
Mr. Hussey Mr. Hussey
Mr. Hussey: I am glad to have an opportunity to speak on this Bill because, like Senator Fallon, I have some knowledge of the insurance business. In fact, my first permanent job was as an agent with the New Ireland Assurance Company. I was very happy with that job until I was lured by the bright lights of Dáil Éireann in 1969. I thought I was going to make my fortune but I found that the lads who stayed behind in the insurance business became far wealthier than I did.
The whole situation has changed in the meantime but I have a certain grá for the insurance business and would like to see it prosper. The founding fathers, the people who went out in the early days and sold insurance, who built up the industry when it was very hard to collect the premiums and very hard to sell the business, deserve great credit. They had a difficult job. They did the job in rural areas on their bicycles. They deserve great credit.
The Insurance Bill, 1987, which we are now discussing has three principal objectives: one, to introduce new supervisory arrangements for insurance companies; two, to empower the Minister to regulate the commissions paid to intermediaries; three, to institute a system of regulation of insurance brokers and agents. Those are objectives with which we can all agree. Recent experience has shown that it is very necessary for the Government to monitor the insurance business and satisfy themselves that the interest of the insuring public is protected at all times.
The insurance industry in Ireland constitutes a crucially important part of the  overall financial sector and thus of the economy as a whole in terms of employment and investment. There are 5,000 people employed in the insurance industry. Our entry into the EC and the passing of certain European Community legislation which gives foreign companies the right of establishment in this country brought about changes in the insurance industry. There are about 30 foreign companies operating in Ireland at present. Some of those companies have huge resources and are in a better position to stand up to bad claims than their Irish counterparts. Approximately 50 per cent of non life premiums at present are going for foreign companies. There is a danger under the new directive which allows companies to operate here without being established here that that 50 per cent will increase further. There is also the danger that those companies can offer reduced premiums for certain risks, thereby forcing other companies operating in Ireland only to compete with them in order to hold on to their premium income. This could have the effect of destabilising some companies which would not have the necessary resources to withstand such an onslaught.
This was one of the things that forced the collapse of the PMPA and ICI. For a few years before they collapsed they were offering rates which were unrealistic. Other companies had to do the same in order to compete. This meant they had a few years in which no profits were recorded. Then, because of the PMPA debacle we had the 3 per cent levy imposed on all policyholders in an effort to get that company on to a sound financial footing once again. This, of course, is adding to the cost of insurance. The insuring public have a right to know when they can hope to see the end of this levy.
One of the things that has contributed more than anything else to the high cost of insurance is the high cost of claims. Our claims record must be the worst in Europe. Our awards of damages are twice what they are in the United Kingdom. Our legal system and the two senior counsel requirement in High Court cases is adding considerably to the cost  of claims. It should be possible for the legal profession to bring about change in this system. They should be able to do so and they should have done so without the Minister having to draw their attention to it and wave the big stick over them. I understand that will be changed in a subsequent Bill coming before this House and we should all welcome that. If it contributes to the reduction of premiums it is to be welcomed by anybody involved in the business.
In many cases the legal costs are higher than the actual claims. The jury system is another cause of criticism and has been for many years. I am glad that is going to be abolished. I hope that will happen before too long because we know that when it comes to a jury awarding damages against an insurance company the sky seems to be the limit.
Small claims, what we would call minor incidents, can cost an insurance company up to £40,000 or £50,000 with legal costs. I have seen quite a few of those. All of this has the effect of increasing the premiums on the unfortunate policy holder. If an insurance company show a loss at the end of the financial year, they have to go to the Minister for Industry and Commerce for an increase in premiums. The Minister usually grants the percentage increase based on the losses the company can show over that year.
Another bone of contention for a long time has been the high cost of motor insurance particularly for young people. Part of this may be attributed to the irresponsible attitudes of many motorists to driving and indeed to the law. Part of it is also due to the large number of motorists driving without insurance. It is said that 25 per cent of the motoring public are driving without motor insurance. I do not know whether that figure is correct. Perhaps the Minister would have a better idea than I about it, but this is the figure being bandied about. That is very serious. It is bound to have repercussions on the industry. It is bound to make insurance that much more expensive for the people who diligently insure their car every year.
There are people who genuinely want to insure their car but cannot get  insurance. I refer in particular to young drivers. Many young drivers have knocked on my door — I am sure Senator Fallon can say the same thing — looking for insurance and it is impossible to get an insurance company to take them on. These are young people under 25 years who are fortunate enough to have jobs in these times and who require a car to travel to work. In most cases an insurance company will not quote insurance to a person if he or she in under 25 years of age, even if he or she has a full licence. There may be one or two companies which will quote but the vast majority will not quote for such a person. Here we have a person who has a job, who has purchased a car, who requires a car to travel to his job and who finds he cannot get insurance to cover his car. Something should be done about that because there seem to be a different regulations and conditions as far as insurance companies are concerned. Some insurance companies will take drivers if they are over 25; other insurance companies will not take drivers if they are under 28 and so on.
There is also a problem regarding occupations. There are certain occupations which insurance companies will not quote for. Insurance companies are very slow to quote for insurance to mechanics, barmen and vets. That is unfortunate and something should be done about it. Even if they do take on those people, there are loadings because of their occupation. That is wrong. Many of those drivers, even if they are under 25 years, are good and careful drivers. Just because they are in a certain age group, which according to the insurance companies' records is the age group in which they have the biggest number of claims, they are all branded with the same brush and they are not accepted for insurance.
I will not deal with every section of the Bill. I am picking out a few sections that are of interest. Many of the other points can be dealt with on Committee Stage. I am particularly interested in Part IV of the Bill because it deals with the regulation of insurance intermediaries and sets out certain conditions a broker has  to comply with in order to stay in business. He has to be a member of the Insurance Brokers' Association; he has to have a bond of £100,000; he has to have personal indemnity insurance and a certificate of solvency. These are all very necessary requirements for any person who is involved in that kind of business and who is accepting money on behalf of clients. It is only right that he should have proper cover.
Seanad Éireann 117 Insurance Bill, 1987: Second Stage (Resumed).