Fifth Report of Joint Committee on Small Businesses — The Insurance Problems of Small Businesses: Motion (Resumed.)

Thursday, 6 November 1986

Seanad Eireann Debate
Vol. 114 No. 13

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Debate resumed on the following motion:

That Seanad Éireann takes note of the Fifth Report of the Joint Committee on Small Businesses — The Insurance Problems of Small Businesses.

Mr. Daly: Information on Jack Daly  Zoom on Jack Daly  It is time the Department of Justice assumed a greater responsibility in the administration of the courts. Leaving responsibility for change in the hands of the courts and a rules committee comprising judges and lawyers is a waste of time.

I have a document here from the “Business Insurance of the United States” of 2 June, 1986. This is a very reputable company. This article is very damaging and can be very damaging to Ireland. They show the map of Ireland, and across the map is a bandage showing the position in Ireland on employer' liability, industrial accidents and insurance budgets in the Emerald Isle.

Many US mutinationals, wooed by generous grants and capital allowances, have recently being enjoying “tax holidays” in Ireland. The initial start up attraction for foreign companies coming to Ireland included such financial incentives as

[1415]“tax relief on manufacturing profits through 31 December, 2000.

repatriation of tax-free profits without restriction.

a 100 per cent tax depreciation.

But US multinationals today find that staggering employers liability insurance premiums in Ireland are eroding the profits generated by favoured tax treatment. With the average premium estimated at 1.5 per cent of a company's payroll, there is a little doubt that the cost of employers' liability insurance has become a burden for manufacturing companies in Ireland.

Why does employers' liability insurance cost so much in the Emerald Isle?

Blame is usually placed on court awards for on the job injuries, now frequently called “rewards” rather than compensation. Although certainly a major factor high compensation awards cannot be cited as the only reason for the present predicament.

The Irish Government has encouraged foreign investment to create new jobs in Ireland and to develop its unskilled industrial infrastructure. As an offset financial incentives granted to foreign investors included 100 per cent training grants. But US multinationals, as well as other foreign investors, could not be expected to transplant urban habits in rural Ireland without some friction.

The friction, in this instance, came from employees. It is general knowledge that common law liability arises from the obligation that each person has to exercise care in his actions so that he does not cause bodily injury or damage to others. In common law, employees are entitled to damages only if an accident was caused by an employer's personal negligence. A worker has no claim against an employer merely because he met with an accident in his employment.

But as trade unions increased in [1416] strength, the notion of personal liability diminished. The employee credo became “them and us” or “if I get hurt somebody has to pay.” One successful claim in a large company often spawned a number of similar claims.

The bureaucratic structure of the unions has helped to centralise the legal process in Ireland. One solicitor often facilitates a large amount of minor claims by having them in one job lot. This tends to encourage small claims and it is often alleged that workers deliberately inflict minor injuries on themselves to jump on this bandwagon. Employers risk a strike by workers if they dismiss an employee that is suspected of injuring himself deliberately.

The fault of the system, however, does not lie solely with the worker.

Another major reason for high employers liability insurance premiums is the fact that employers in Ireland are not as attuned as US employers to health and safety loss control procedures.

Most companies are in business to make profits not to be healthy and safe. Records show that the vast majority of work accidents in Ireland result from a failure to guard machines, slips, trips, falls and internal transport incidents. These accidents occur in Ireland with greater frequency, and although preventive measures are well known they are not always instituted.

While many US multinational subsidiaries in Ireland follow health and safety guidelines strictly, a large number of managers and employers in Ireland fail to discharge their legal duties. This failure which leaves a law of change as the only barrier between employees and an accident, adds to high frequency claims experience and helps to drive up insurance premiums.

Only 20% of Irish employees are covered by existing statutory laws that prescribe legal standards for employers. But all employers in Ireland — including those not covered by general statutory legislation — are subject to common law.

[1417] Common law underpins the rights of workers to a healthy and safe workplace. Unfortunately, common law principles are often used by employees to support a claim “after the fact” rather than by employers as a code of good practice in order to avoid accidents.

In common law, all employers in Ireland must provide their employees with:

A safe system of work.

Safe plant and equipment.

Competent fellow employees.

The broadest of employers' common law duties is a safe working place. This duty encompasses a proper instruction, effective supervision and safe work methods. Employers must ensure that the place of work is safe and that employees are afforded a safe means of access and egress.

The common law duty of safe plants and equipment obliges an employer to provide and maintain proper machinery, plant appliances and works needed to do the job.

The main body of legislation in Ireland, the Safety in Industry Acts of 1935 and 1980, imposes liability on the employer for securing the health, safety and welfare of employees. The laws also allow for criminal liability of managers.

An employer's duty under the Acts include training employees, guarding machinery, lighting, ventilation and protection against falls, chemicals exposures and noise. The laws also require an employer to establish a safety committee.

In addition, the 1980 Act obligates an employer to draw up a safety statement, detailing the provisions made by the company to safeguard the safety and health of the workforce, the extent of cooperation required from employees, the availability of safety training facilities and the measures taken to guard against specific hazards that are present in the workplace. When a company maintains a safety [1418] officer the statement must also detail his duties.

Complying with this aspect of the law makes employers, insurers and corporate legal counsel nervous that the statements may serve as a written blueprint for employees who sue for negligence.

Common law also requires an employer to select properly skilled people to manage and superintend the business. If employees are not judged competent the employer can be held vicariously liable for the acts or omissions of any employee where they result in injury of another worker. But regardless of how well trained or safety conscious a worker may be, accidents will happen.

Statistics show that the human failure rate for routine production operations is about one in 1,000 and rises to one in 100 for workers in stressful conditions. As these figures indicate, employers would be wise to emphasise the “safety place” approach to claims control rather than rely on a “safe person” approach.

While these measures might be construed as loss-control procedures, they are often the cause of high-liability claims experience.

When courts are left to define negligence, it is not sufficient for employers to try to fit machines with guards, instruct the workers in their use and have supervisors watching to prevent violations. Instead the legal doctrine of the unsafe system of work has resulted in negligence “rewards” for accidents that are truly incidental to the nature of an employee's work.

In most European Economic Community countries, these occurrences would be compensated by the State as social welfare accidents, rather than through an employer's liability insurer.

However unlike other EEC member countries, compensation for High Court claims in Ireland is still assessed by a jury. Lesser cases are adjudicated in Circuit Court without jury involvement and awards are limited.

Understandably, most claimants [1419] prefer to have cases tried in the High Courts, since the unpredictability of a jury usually means greater compensation.

Insurers, therefore, often settle small cases out of court because they fear big jury awards, although cases that could potentially result in large awards are usually litigated.

In the long-term view, however, insurers will probably be forced to litigate all cases in the hope of dissuading smaller claimants from bringing suit. While this may appear to be a minor solution, huge defence costs — usually provided outside of the policy limits — will undoubtedly keep premiums high. Policy holders can expect the problem to be compounded by the decreased number of insurers willing to write employers' liability insurance in Ireland. Increased insurance premiums hurt business because they add to the cost of goods produced in Ireland, making those goods uncompetitive with those other EEC member countries.

But the insurance industry cannot be expected to singlehandedly change an inefficient system. Neither can employers.

As is true in the United States, the court system needs to be changed. A proposal to abolish the jury system is being contemplated by the Irish Government but this is not a presentday solution.

In an ideal world no employees would suffer on-the-job-injuries, insurers would pay no claims and employers would not have to pay liability insurance premiums. In the real world, however, all an employer can control is frequency and severity of accidents.

On-the-job safety is the responsibility of both management and workers, although management should play a major role. Do remedies cost money? Yes, they do. Will the remedies save money? Yes, they certainly can. Why not look into what your subsidiary can do to help the employers liability insurance crisis in Ireland?

[1420] Remember the only thing worse than a staggering employers' liability premium is no coverage at all.

That document showing the map of Ireland and the bandage across it is being read throughout the United States by business people, especially people interested in export or going overseas to establish businesses. It is a sad reflection on Ireland and it might be one of the causes that will slow down people coming to this country and it should be taken very seriously. I will leave a copy of it with the Minister later.

I will give a few examples of our employers liability in Ireland. Small contractors pay 20 per cent of the total wages bill for their employers liability insurance. Shops paid 5 per cent. This 5 per cent has increased by 30 per cent per annum compounded over the last three years. Cover is often not available and many risks are no longer covered. The minimum premiums are becoming more common, especially with the very big insurance people, Lloyds. Minimum premiums are not refundable so that if a person takes out an insurance policy for X number of pounds to cover something for 12 months and if it fails for some reason the balance of the cover is not refunded. It is not refundable and this is becoming a common practice.

Another feature of the minimum premium is that the banks do not finance it. The banks are not charitable institutions; they are not in competition with the St. Vincent de Paul or the credit unions; they have to account for their money to their shareholders and they are not going to finance something where there is no refund or no equity in the event of it failing. If they finance a car or a machine and the company fails, at least they have collateral; they can recover the machine and they will get something out of it but with the minimum insurance premiums they will get nothing.

A high proportion of business using the premium plans find these are becoming more expensive as a result of high interest rates. There is a new thing now with some insurance companies and one in particular —“There is no problem [1421] about your insurance premium; you can pay it over 12 months in monthly payments.” That is grand when you get it, but when you find at the end of the year that your insurance has gone up by another 30 per cent — the usual rate is about 2½ per cent per month — then your insurance becomes a dear insurance. People who have not got the capital at the beginning to pay out for insurance find it very handy to use this scheme, but they find it very expensive.

Fire and theft is now a problem because malicious damage cover is to be removed. When the malicious injury and malicious damage cover is removed the estimated cost is 20 per cent upon existing premiums and that is only for a start because the insurance companies will find out that they pay a lot of malicious injury claims and pay a lot of frivolous claims. In the old days it was a pain in the back, but there is a modern one now which is whiplash: if the car stops suddenly one gets whiplash and one can get about £10,000 compensation because the company do not want the expense of going to court.

The city centre is in the news a lot these days as it was a couple of years ago. Cover is not available without value connections and of course value connections mean that somebody who has a premises in the city must supply supporting business. That can be done through a multinational or a company that is nationwide and can transfer costs from one place to another and the company can average out give cover, but somebody who has a business in the city centre only cannot get cover. The city centre does not have to be Sheriff Street and the back of O'Connell Street: it has extended to Molesworth Street and on to Duke Street.

I know of a case of a shop that had been insured for the last eight years with a certain company and certain requirements were made each year by way of safety, screens and walls and so on, and these were always complied with. There was never a break-in in these premises and a claim was never made but the insurance company decided they would not cover it any more. After a long battle with the solicitors they decided to cover [1422] the premises but the premium was five times what it had been and they gave no reason for it. Extra conditions applied also. Fortunately, the person was going to become his own insurer because he could not pay the premium but another insurance friend told him that he could get cover from another company which he did and he got it at the old rate and no restrictions were put on it. So, the insurance companies are not consistent. While I do not expect them to take on bad risks where they have no chance, I think they should take reasonable risks because that is what they are there for and that is what the business is all about.

Capital liability is really a rip-off especially when exporting to the United States. A typical example of that is pharmaceuticals. The insurance premiums on exports of pharmaceuticals to the States is nearly equal to the amount of money they get for the pharmaceuticals. People had to stop exporting or, where they have good connections and fairly safe travel arrangements, they export without any insurance cover and become their own insurers.

Another problem which exists in Dublin — and people are inclined to deny this — is the protection racket. When I raised the question of the protection racket in Dublin at the small businesses committee meeting one insurance company representative said in a chat with me afterwards that he could not admit that and he would not admit it, but he would admit it to me; if I wanted to quote him afterwards he would deny that he ever said it to me. I said: “I will not quote you but I will quote the case”. He said that they insure a number of businesses, particularly pubs where so much has to be paid out every week to gangs to give these premises protection against raids, in other words, to give them protection against these same gangs raiding them, that people have gone out of business and that is a very dangerous situation. Sometimes protection money has to be paid to a number of gangs. The Garda have enough of problems without this but it is a problem that will have to be looked [1423] into and it is very serious.

Another insurance problem — I wouldn't call it an insurance racket — relates to travel insurance where you book your holidays and some companies, even though you have your own insurance, or even if you do not want insurance and are prepared to be your own insurer, insist on you taking out this insurance. You pay a high premium for it but then, to add insult to injury, when there is a claim on these insurances they want to deny the liability and they put people to very much trouble. I know a number of travellers who had genuine claims, who submitted the documents and were told these were the wrong forms although they got them from the insurance companies. Then when they completed the second set of forms these “got lost” and people got fed up and did not pursue their claims. That suited the insurance companies. It was a very easy solution for the companies. That is another rip-off and it should be investigated. When a person wants to travel and they go out with a company if they pay their insurance they should get compensation if they have a claim.

There was a recent case of a person flying out of Dublin with Aer Lingus. When they were loading the plane that person's luggage was taken aboard. They were going to Portugal for a golf outing. When they arrived in London there was a telex before them awaiting the person concerned from Aer Lingus to say that the luggage was damaged and to get it seen to by the other carrier which was British Airways who were taking it on from there. British Airways came along and bandaged up the baggage as best they could. These people continued on to Portugal and had their holiday. When they came home they put in a claim to Aer Lingus who said they never got the claim — even though they had notified the owner that the accident had occurred in their own plane. Apparently, two separate departments did not communicate with one another. The person tried on a number of occasions to get money from Aer Lingus who kept on passing the buck.

[1424] Now legal action is being taken. That is not good enough. If small companies do things like that we talk about back lane traders and the black economy but when you have the people flying the green bird doing it, it is a different story.

Senator Eoin Ryan referred to two insurance companies. He said there were two companies who offered cheap insurance and because of that they went out of business; if they wanted to stay in business they could not give cheap insurance. The truth is that one of the insurance companies, the PMPA — the old PMPA — went out of business not because of the insurance business but because of their other activities. They had something in the region of 30 garages in the country and they were the only insurance company in Ireland or the UK who ever decided to have garages to do their own work. The garages lost them buckets of money. Then they had their Friendly Society, the PMPS, where people invested their money. One man came from England and he put in £35,000, because he had sold his house and he wanted to build another one. When he came to build the other house he went to draw out his money and they told him: “Wait until the house is built and we will give you a bridging loan in the meantime”. He said: “All right”. They said: “You will gain on the interest”. Then they came back and said: “We cannot give you a bridging loan but you go to the bank and get that”. He took their advice and got the bridging loan. The PMPS went “burst” and now he has two loans to pay. He lost his £35,000 and he has to pay back the money he got and he will probably be paying it back for the rest of his life. That is one of the insurance companies.

The other insurance company was the Insurance Corporation of Ireland. That insurance company lost money. In their insurance offices in Ireland they were doing all right: they were making money but they had a couple of branches across the water one of them in London and it got to be known as the “soft touch” insurance company where anybody who had any kind of a risk could go in and get [1425] insurance. The result was that they paid out a fortune and then they had to go “burst”.

We have to restore the balance in insurance for business. The cost of insurance should be a business cost like any other. In recent years too many other factors have come into play. We have to get rid of these factors and get back to the simple issue of liability insurance itself.

Mr. Fallon: Information on Sean Fallon  Zoom on Sean Fallon  Like other Senators I am very much aware that many of the small businesses in this country no longer can afford the cost of public liability insurance or the cost of employer's liability insurance. Many of them have no insurance at all. Others are reducing their sums insured for fire or are reducing their indemnities in regard to public liability. If there is a fire or an employee is injured and if there is a claim under the public liability section, in that situation it is extremely serious for the business concerned.

The Minister when speaking on the other order referred to the fact that banks and credit unions are not charitable organisations and that is correct. Neither are the insurance companies. If they do not make a profit, whether on the writing side, on the investment side or on the general trading side — which is a combination of both — and if they continue to make huge underwriting losses, that is reflected in the premiums. How to solve the problem is the concern of insurance companies, traders, legislators and all of us. I realise that in many cases insurance cover is not available. In many industries, in many trades and in many of our cities and towns the availability of cover is a problem and for the small businesses that in itself is a problem.

In the report before us the Federated Union of Employers made the point that from 1982 to 1984 the increase in employers' liability premiums was, on average, an increase of 280 per cent; inflation over the same period rose 23.9 per cent. Some individual employers experienced increases of between 300 and 400 per cent. That is from a survey of the FUE members. In the construction industry [1426] there are many small businesses of the kind we are talking about in this report and they are experiencing extreme difficulty in regard to employers' and public liability insurance. Any of the allied traders such as joinery, find it almost impossible to get the cover they should have.

I was recently asked to arrange insurance for a small builder and I tried six or eight companies before finally getting one quotation for a minimum premium of £2,500 for employers' liability and £1,000 for public liability. I was lucky to get cover at all. That is the market at the moment. It has become extremely difficult to arrange insurance of that type where there is public liability and employers' liability involved. The rates continue to increase all the time.

Last year I came across a small light engineering business, an employer with one employee and I was lucky to arrange a cover for him for public liability and employers' liability for £500 which I thought was lovely. This year the company for the same risk without any claims are looking for a premium for £2,600. That has been the scene, it is going on and on and every excuse is being made. We know that huge claims are being made. Obviously that is reflected in the premiums.

There are other aspects to insurance as well that may not be fully touched on in the report. It is away from the small industry idea but I will mention it anyway. In my home town there is a football pitch owned by the AFC. Their public liability in 1983 was £250, in 1984 it was £600, in 1985, £5,000 was required and the premium was subsequently reduced, with an excess of £500, to £3,500. This year they are looking for £4,500. It is the same risk with no claims. That is escalating. The reason they give is that they are caught for the re-insurance and it is causing problems for them. This is not touched on very much in the report. Re-insurance is playing a major role. The Bradford fire and the fire at the national stadium in Brussels is being attributed in some way to the high cost of public liability insurance in this [1427] country as well, not just the bad claims experience and other problems. That is another factor we have to contend with.

With regard to the £3,500 premium I mentioned, on top of that you have to put Government levies which amount to £100. That 1 per cent and the other 2 per cent as a result of the collapse of PMPA is also contributing to increased premiums right across the board. You have the ordinary fire premium paid by the person in receipt of a pension who has a small fire policy, who has his house insured but who is paying extra money for something he had no say in. The PMPA meant nothing to him yet he has to pay through the nose for that situation. That is very unfair.

The committee decided to investigate a number of areas. It was topical for them to deal with the problem of small industries. They deal specifically with the public liability, employers' liability, professional negligence and with burglary and the fire side of it. There are other areas we could talk about like cash in transit but they are the ones we feel are causing real problems for small industries.

The failure to renew premiums because of high costs has been mentioned. The report refers to the reduced cover which is happening on a very regular basis. This is a pity because obviously the less cover you have in a claim the less you can recover. Page 8 refers to motor insurance, I do not want to comment very much on motor insurance except to say that for the first time in a long period insurance companies are out canvassing for motor insurance. They see it as a paying proposition in regard to the private car. Fortunately they are not as helpful in regard to the commercial side of it, the vans and the big lorries. I know of one case where a person engaged in some quarrying and working for people like Roadstone found it extremely difficult to get cover. While the motor insurance companies are out looking for business compared to a few years ago when they did not want to know about it, it is significant to mention that there is at least [1428] an improvement there. We should also, on the other hand, make the point that commercial vehicles seem to be still an area they do not want for obvious reasons.

The report refers on page 31 to the inner city problems. The Garda Commissioner's report on crime clearly illustrates what is happening. In 1978 there were 18,923 burglaries and in 1984, six years later, that had increased to nearly double that figure, to 35,228. In regard to arson and malicious damage, the figure in 1978 was 1,009, in 1984 it was 2,655. An increase of that size in the level of crime against property has clear insurance implications. This is something the companies have recognised. In fact, over the years in the householders' insurance, the rates increased dramatically from what would have been £2.50 per £1,000 to as high as £8.50 per £1,000 in the contents area. While I believe there has been a levelling off in the last year or two, it continues to be a problem. Indeed, the inner city in particular and some of the large areas are described in the report as no-go areas.

The problem of malicious damage insurance and the elimination of that since July of last year will have implications for the insurance industry because as we all know there are certain rights under an insurance policy, subrogation rights, whereby if they can claim from a local authority under malicious injuries claims, they will do so. That is no longer there now except in the case of riot or perhaps some form of political activity. That, too, will increase the cost of insurance in the year ahead.

The state of non-life insurance industry in this country is not at all strong. The underwriting losses have increased from £9 million in 1979 to £97 million in 1983. Indeed, the investments of the non-life companies exceed, £1,000 million. That is the reserves and the cashflow, the only area where companies can invest and hope that if they have an underwriting loss the investment situation will allow a levelling off or a general overall trading profit. That has happened in many cases but we know from the reports that in [1429] some companies it did not happen all of the time. We have the combination for some companies of increased premiums and huge losses. That has not helped them and has not helped the solvency margin of some non-life insurers.

I support many of the findings of the committee. Section 2.2.4 which refers to the links with the occupational injuries benefit scheme was referred to by Senator Daly. In a way what he was saying was correct. Employees should be insured under the Occupational Injuries Act and they should also be insured at common law liability. Even though a claim ought to be an occupational injuries claim because it has set benefits the claim is usually not dealt with in that way. The solicitors tend to make every claim a common law claim. The result is that they go through the courts and settlements are made before the court or in the court itself. Even though they ought to be occupational claims dealt with by the Department of Social Welfare, the opposite in fact is what happens.

Section 2.6.4 talks about the whole area of High Court judges and the raising of Circuit and District Court limits. I welcome that. Legislation ought to be introduced to raise the limits for awards in the lower courts — from £2,500 to £5,000 in the District Court, and from £15,000 to £30,000 in the Circuit Court. If that were done it would expedite the hearings and would reduce the delays associated with High Court hearings.

Section 2.7 shows concern at complaints suggesting that property owners could be sued successfully for negligence arising out of accidental damage and injuries to trespassers. I welcome a review of the law of tort with a view to imposing strict liability on the trespasser. I can recall a claim some years ago where young lads broke into the abattoir of Athlone Urban District Council. They took away the humane killer and some bullets, and in play-acting subsequently a young lad lost an eye. He made a claim against the Urban District council and was successful for a figure of £3,500. A very common type of claim is where you have a well run pub. From time to time [1430] people might drink too much. There might be a row and glass is broken and people are injured. Claims of that kind are brought against the owners of the pub and on the ground that there was not sufficient care taken in management and control generally of the pub. Unfortunately claims of that kind succeed. I would welcome a review of that problem.

The report refers to educational qualifications of insurance brokers. They make the point that, while acknowledging the contention of the insurance brokers that insurance is becoming an increasingly complex and specialised area, they were struck by the lack of formal minimal education requirements for insurance broking. I have to make the point that, in general, insurance brokers in Ireland are members of the Chartered Insurance Institute of Ireland, many of them have ACII and FCII degrees and generally have a very good knowledge, practical as well as educational, of the insurance industry. If there is to be any further education it should be through the Chartered Insurance Institute who are the educational wing of the industry. I am sure they would be only too happy to help in arranging courses throughout the country if requested.

The report also recommends the proposed insurance brokers council. That is something I would welcome but, unfortunately, it appears that it will not happen. We now have an insurance Bill which sets down clear guidelines for insurance brokers and agents and a definition of both. It will cost an insurance broker a lot of money to retain his status as an insurance broker because he will have to have a consumer bond of £100,000. He will have to be a member of either NEVA or of the Corporation of Insurance Brokers which will cost him a fee of £x and he will need a professional indemnity bond. Before he writes one bit of business the insurance broker will have to spend £12,000, £14,000 or £15,000 and for bigger brokers the figures are much in excess of that amount. This will present problems in the future for insurance brokers.

We could talk at length about what [1431] we can do about the insurance industry. Obviously the idea of the elimination of trial by jury whether it is a jury with advice from the judge, or what is proposed in the Bill, should help to stabilise premiums. At the moment if a case goes to the High Court, the jury decide on the amount of the award, which in itself is OK, but I have seen many cases where they have ignored the liability aspect. The idea now is to run to the High Court, get to the jury and get an award whether you are at fault or not. Any improvement in that situation is welcome and should reduce premiums with benefits for small industries and for all of us.

We have a duty to work towards getting realistic premiums on the liability side, the fire side and on all aspects of our insurance. Failure to get cover at realistic premiums will clearly add to the unemployment queues in the future. We could talk about the report for a long time. In general it gives food for thought. I should like to congratulate the chairman of that committee, Deputy Yates, Senator Lynch and all who acted on it on the good work they did in producing this report.

Mr. Fitzsimons: Information on Jack Fitzsimons  Zoom on Jack Fitzsimons  I am glad to get an opportunity to make a brief contribution on this motion. The report is very comprehensive, I should like to pay tribute to the chairman and all the members of the Joint committee. As Senator Fallon said, it gives at least food for thought. We hope something positive will come from it. It seemed to me on a few occasions that perhaps the members of the committee were not in close touch with reality. I recall that in a previous report some suggestions were made on how small firms might get State business. Indeed it looks on the surface as if this is something any firm could hope to achieve. I know about six cases where people were doing work for the State and gave it up because it was impossible to get paid on time. When the account was due there was always some delay. When they wrote in again they might be asked to send in a copy invoice or they might [1432] not be able to speak to whoever was in charge of the section. I know people who could get work from the State but who decided not to take it as it was costing them money.

This report is unrealistic in some respects. It is a difficult area. I am not minimising the work of the committee on that account. Senator Eoin Ryan brought us down to earth with his contribution. He made the case of the 36 insurance firms, 30 of them foreign-based, only six are native. It is a very competitive market; the firms are anxious to get all the insurance possible and the rates are as competitive as they can be.

In the Construction of Irish Industry newsletter, Vol. 45, No. 9 of 1 July 1986 there is an article on product liability in the United States. The first paragraph is very relevant and states:

In the United States, if a person suffers personal injury outside his place of employment and seeks to be compensated, his lawyer will advise him to establish what product or products were involved. These products will then be examined for any shortcomings that could be considered a defect. A defect could be the failure to warn of the likelihood of that particular accident arising, the possible consequences, or means of dealing with the problem should it arise. If such a defect is discovered, the injured party can then take action against virtually anybody in the chain of supply of that product or these products to him. Should the matter go to law the attitude of the court will be that if the product did not exist that accident might not have occurred. Damages for injury, pain and suffering, loss of earnings and future medical expenses can be awarded to the claimant in such amounts as to fully compensate the claimant for the damage suffered or to be suffered as a result of the accident.

The same situation applies here. I knew of a situation in the United Kingdom about ten years ago where a small farmer got a contractor to lay a yard for him. He [1433] was supposed to lay a thickness of six inches of concrete, but the contractor only laid two or three inches and there was a subsequent action. The contractor had disappeared and the farmer took the action against the man who supplied the concrete and won the case. That situation applies here.

Senator Fallon instanced a number of cases with regard to the public liability and trespass. This is an area where something should be done. The report states:

We were concerned about complaints suggesting that property owners could be successfully sued for negligence arising out of accidental injuries to trespassers. We recommend that the Department of Justice review the law of tort with a view to imposing strict liability on the trespasser.

I know of a case where a farmer was sued because a trespasser had broken a leg on ground which was uneven. It would seem to any normal individual that the farmer should not be liable for someone who trespassed on his land. Nevertheless, the trespasser won the case and got compensation. This was not a situation where, for example, there was some right to enter the land. I could visualise that if there was an ancient monument but this farmer owned the land, the trespasser was injured and he got compensation. Clearly that is wrong and if something positive comes out of the report in that regard it would be well worthwhile.

With regard to city and county development plans, there is a recommendation that all local authorities amend their development plans to take account of the specialised security needs of firms in high risks areas and that firms be exempted from planning fees when seeking planning permission for security measures. I endorse that so far as is practicable and in so far as it is possible to help but I am not sure what can be done or what kind of planning permission is envisaged. Perhaps it would be a case of erecting suitable shutters, which is frowned on from the aesthetic point of view. Perhaps the committee should have been more specific. The idea behind the [1434] suggestion is a good one and should be followed up.

Some percentages are given with regard to the increases in employment. The Federated Union of Employers stated that increases in their area with regard to employers' liability premiums were an average of 280 per cent and in some instances it was between 300 and 400 per cent of an increase. Irish Caravans Council Limited, an important industry with regard to tourism, experienced increases as high as 400 per cent in the past two or three years. The Royal Institute of Architects of Ireland state that there was an increase of 50 per cent for professional indemnity insurance and many firms will have experienced an increase of twice that amount of 100 per cent. RGDATA stated that the current premium increases were from 200 to 1,000 per cent for property insurance. This is a serious situation.

The committee were hampered by the lack of statistical data. The report states:

The scale of the premium rate increases notified to the committee by individual firms and trade associations is not reflected in the official figures for insurance companies provided by the Department of Industry and Commerce.

It is unfortunate that the information given in the blue book which sets out this information is not comprehensive and up-to-date. How could the committee come up with a worthwhile report on the basis of that information? The report goes on to state that one of the problems encountered by the committee in compiling the report was the lack of a statistical data base.

Acting Chairman (Séamus de Brún): Information on Seamus De Brun  Zoom on Seamus De Brun  Will the Senator please give the references for the record?

Mr. Fitzsimons: Information on Jack Fitzsimons  Zoom on Jack Fitzsimons  Page 5 of the report. They had no proper statistical base with regard to the problems of insurance for small businesses. Much of the information [1435] received by the committee from trade associations is in the form of research based on complaints by members. It would be almost impossible to provide a proper report on that basis. They said the nature and range of the complaints to the committee were so emphatic and so widespread that the adequacy of the monitoring arrangements of the Department of Industry and Commerce, the insurance industry and trade associations must be called into question. That is a serious complaint. Something should be done about this situation.

In compiling a report of this kind on such an important matter, so essential for the industrial life of Ireland, the committee had to rely on secondhand information. This problem with regard to the availability of insurance is a serious drawback to people starting up their own business, particularly people under 25 years. The IDA state that the inability to obtain insurance at reasonable rates increases the risks inherent in start-ups. In the case of employers' liability, it can prove to be a disincentive to expansion of employment. When they talk about reasonable rates I am sure they mean low rates. Anything that can be done to lower the rates should be done. I do not have time to deal with that area. When we talk about reasonable rates, we are talking in terms of firms making a reasonable profit and of the commitment of firms. We are talking about a very wide area.

Urban decline is considered in the report. This is a very important area, particularly with regard to the Bills which have gone through this House recently. We are told that an inability to obtain property insurance has forced some firms to accept the protection of criminal elements. I would like to have seen this developed in some detail. It is something we are all aware of through the media, television in particular. I am not sure how widespread or how great a problem it is but it is a very unfortunate problem and one which I would have liked to hear spelled out in greater detail.

[1436] The inability to obtain insurance at an affordable rate must militate against the success of the urban renewal programmes announced by the Government. A 74-page booklet which is very good is available with regard to urban renewal. It would be unfortunate if the whole question of urban renewal was interfered with because of that element. Perhaps the Minister would look in detail at this problem.

The construction industry is dealt with in the report. This is an area in which I have some knowledge. It has a bad image with regard to accidents. The report tells us that it is quite normal for a small contractor to pay out £6,000 or £7,000 for liability insurance before ever going on to a site. This is true. It is an area which is prone to accidents. I do not know why this is because it is an area that is covered by the Factories Acts and there is very close supervision by the Department. An inspector visits sites throughout the country. Co-operating with the requirements costs the contractors a considerable amount of money and pushes up costs. By and large the situation is far different from what it was many years ago when some firms were carrying on on shoestring. It is difficult to understand why accidents still occur and why costs are so heavy. Local authorities insist, as the report says, on a high level of cover and very rightly so. This makes it extremely difficult for small contractors to get work with them. I know of one contractor who went out of business because of accidents and his insurance premium was so high he could not pay it. The same applies with regard to local authorities getting contractors. Perhaps the best firms are not able to get employment precisely because they are not able to pay the high premiums.

With regard to insurance brokers, Senator Fallon dealt with this very adequately. I agree that they perform a very important role. Most insurance is placed through brokers. I remember many years ago it was possible to pay a broker in instalments. I do think this is possible now. When I first drove a car that is the way my insurance was paid —[1437] in dribs and drabs. The broker is a very important person. He can place the insurance with the proper firm. I welcome the Bill that has been introduced with regard to brokers. I am sure it will result in tightening up the regulations. Senator Fallon said that brokers at present have to pass an examination. Most of them belong to a professional body and there can be no complaints with most of them.

With regard to the extra cost through having a number of lawyers involved, I will make a brief reference. The legal representation system is covered in great detail. With regard to the High Court action, apparently generally there are two senior counsels, one junior counsel and one solicitor. Therefore, eight lawyers participate in each action. There is so much money at stake that it pays to have all these people involved. It has been estimated that legal costs in Ireland represent between 15 and 20 per cent of claims paid or roughly twice the British level. Leaving aside the British level 15 to 20 per cent would not seem too high having regard to the fact that that also includes 25 per cent VAT and also that not all cases are won.

There is a reference to the fees of expert witnesses. In my experience most of the costs for legal witnesses arise because of the long time involved. Anybody who has ever been a witness at a court will realise that time means nothing — one must be there for many days, perhaps to give evidence for ten minutes. I am sure something could be done to get evidence in some other way to curtail that time because the law is expensive. It would be interesting to know how many cases go that far and indeed how many cases start because of the input from the lawyers suggesting that there may be some compensation available. I am not saying that is wrong. I would like to see the joint committee addressing the situation we have at present where lawyers are in what you might call two grades. I know there are reasons for this, for example, under this present system it is easier to specialise but it would be reasonable [1438] that lawyers might not be divided into two classes. I am surprised to some extent that the committee did not allude to that in some way. This should be looked at as a means of bringing down the costs.

There are many other areas I would like to deal with but most of them have been covered. Finally, I would like to refer to one aspect which relates to an excess claims scheme. The committee state that the insurance industry should actively examine the scope for introducing an excess claims scheme such as already exists in other types of insurance cover, for example, comprehensive motor policy, that the principle here is that all insurance claims under a single policy and up to a certain predetermined level for year of cover be settled by the policyholder and not the insurance company and cover and that this predetermined level should be set at £1,000. This should be looked at.

In spite of my few criticisms — as a member of a joint committee I know that time and hard work are involved — I congratulate the chairman and the members on their report and hope it will have some effect and fairly immediately.

Minister of State at the Department of Industry and Commerce (Mr. R. Bruton): Information on Richard Bruton  Zoom on Richard Bruton  First of all I should like to join with Senator Fitzsimons in congratulating the committee on their work generally on the problems of small business and, in particular, on this report on the insurance problems of small businesses. It is a very wide ranging report. They have done a useful job both in assembling the various problems people are meeting and in putting forward positive suggestions as to how we might set about tackling the cost and other problems in the insurance market.

As the background to discussing employers' and public liability it is important to bear in mind the claims experience of insurance companies dealing with this sort of liability in recent years. There is very substantial underwriting loss at present in writing this sort of business. In 1980 the underwriting loss as a percentage [1439] of premium income was moderate enough at 27 per cent, but it rose dramatically to about 62 per cent of premium income in 1983. That was a peak and we have gradually seen the underwriting loss experience improve in the following years. It is back down to well under 50 per cent in 1986.

However, there is still a very significant underwriting loss on this business. In absolute figures the underwriting loss in 1985, excluding the ICI, was £34 million. What lies behind these figures is obviously, as many Members said, the period 1982-83 when there was a very competitive scene in the insurance industry and very few increases in premium. That has changed dramatically since 1983 and the improvement in the loss experience is due in large measure to hectic increases in premium.

The Government recognise fully the problem this is causing for small business. Many people in the course of their contribution, including Senator Fitzsimons, commented on the lack of precise statistical information available to us on the whole issue of employer and public liability. I have to acknowledge this is a problem we face. It stems understandably enough from the fact that the Department saw themselves mainly as a supervisory body and their concern was with solvency and not so much with the other issues in the past. We are now having to confront much more seriously the whole issue of cost and availability. I sought to get much more detailed statistical information from the insurance companies.

There is, of course, another difficulty in quoting any average figure or figures about cost of employers' liability in that it varies immensely from one trade to another. The figure quoted in the report by the CAII was 2½ per cent as an average figure and Senator Daly quoted a lower figure of 1½ per cent from an article. These figures are subject to a wide margin of error because they depend on what sample is taken. Many Senators referred to the construction industry where you are talking about much more hefty levels of employers' liability. There is not a [1440] book rate of employers' liability applied. Each individual case is treated on its own merits. It is more difficult in that way to get a feel for the average costs and other statistics we need.

Similarly on availability, we do not have great information on how many people are being turned away or having difficulty in getting employer liability cover. We have a system in the Department for receiving complaints on that topic. In 1985 the figure of complaints was about 200 up on previous years. That figure does not sound very large but as I said it is not compulsory to have liability insurance and many people finding problems with the availability do not complain to the Department. The Government recognise the problems of cost and availability. I welcome the constructive recommendation put forward in this report.

I should like to deal with some of the topics raised in the report. The first issue recommendations were made on was the whole issue of customer relations. I fully accept the main thrust of the committee's recommendation in this area that insurance companies should improve customer relations and publish suitable information booklets. I will undertake further discussions with the insurance industry to try to improve matters in this area. All too often people do not know precisely the implication of the insurance contracts they have written and that often causes immense difficulty. The more people are aware of precisely what cover they have, and in what circumstances they are covered, the better.

The question of the Government instituting a code of conduct if the insurance industry do not implement the committee's recommendations has some merit particularly if it resulted in the insurance industry dealing fairly and equitably with consumer complaints. The position at present is that by default on the part of the insurance industry, my Department find themselves in the position of protagonists on the part of the aggrieved consumer. The suggested code of conduct could provide the mechanism for dealing with declined cases or cases [1441] involving excessive loadings or premia. The insurance industry recognise that they have a poor overall image. One of the important objectives of the Irish Insurance Industry Federation is to improve the industry's standing with the public. The implementation of measures to attain this objective is now a top priority with the Insurance Industry Federation.

The committee's major second recommendation is on the question of an incentive scheme. The committee recommended that an incentive scheme should be introduced whereby insurance premia for small industry should reflect both their safety and claim record and their efforts in the risk management area. I am very taken with this proposal. I intend to take this up with the insurance industry to see what could be achieved in the way of rewards in the form of premia reductions for satisfactory improvements in risk management. The insurance industry take account of safety and claims records in their formation of premia. That aspect of the recommendation is not entirely new. I will pursue the other issue of giving people who are undertaking safety improvements some bonus. It is more difficult in the case of employers' liability than, say, in something like motor insurance because of the specific tailor-made type of contracts of insurance drawn up between the insured and the insurers.

The other interesting recommendation made is on the question of excess claims scheme. This was referred to by Senator Fitzsimons in his closing remarks. In recent years there has been increasing pressure for the introduction of excesses under liability policies and this is reflected in the joint committee's recommendation. I understand the insurance industry have been prepared to meet the needs of individual clients in suitable cases in this regard. It must be recognised, however, that excesses are only practical if the policyholder has the resources to handle claims under the agreed excess. It has obvious implications for innocent victims if the firm cannot pay or does not pay claims lodged below [1442] the agreed excess. The Senator has taken a realistic view in setting the figure at £1,000. The question of excess is worthy of looking at. It must be said that, where the insurer and the policyholder are already able to negotiate on this issue, it may not be desirable that we look for a blanket requirement that exessses be used. We will have to use our judgment as to whether the existing system where people can negotiate such an excess is adequate or whether we need to improve the situation.

The compulsory data base was another major recommendation. The committee called for a mandatory requirement that insurance companies should keep proper statistical information on the number and cost of claims in each category of operation and for each trade and that the data base should extend to applications refused and existing customers delisted, together with reasons.

As I said earlier I recognise deficiencies in the data available and I have taken steps to improve this. As you know the Motor Insurance Advisory Board are doing some very detailed work for the Department to improve the statistical base in relation to the motor insurance industry. Depending on what information we receive from that we hope to extend it to other areas of liability if it is appropriate. However, I have some doubts about a mandatory data base of consumer related information. Unless it could be shown that the benefits from it would be worth while it would be quite a considerable burden to keep such data. Perhaps the way out of this problem of consumer information is if we could get a proper complaints mechanism rather than compiling sheafs and sheafs of data on what is going on. I would question the wisdom of that.

In relation to speculative claims I fully agree with the committee's recommendation that the absence of jury in personal injuries actions will make it easier for insurers to resist speculative claims. The insurance industry should now seize the opportunity presented by the proposed reforms to the legal process to resist speculative claims, thereby [1443] making speculators more reluctant to take claims to court where they will face the prospect of a more dispassionate and impartial assessment of award before a judge.

In relation to customer education the committee recommend that the insurance companies play a greater role in developing positive attitudes to risk management. I support this view. The industry should devote more resources to encourage better risk management in industry. The long term benefits of such an approach would greatly outweigh the short term increases in underwriting expenses. If linked to the earlier issue we discussed of reward in premia for safety measures this combination could be a very worth while advance. In addition, the establishment of the national authority for occupational safety and health should go some way to improve the safety and health conditions in industry. The necessary legislation is currently being prepared by the Minister for Labour and it deals very comprehensively with the whole issue of safety in the workplace drawing in both the employer and the employee into this task.

On product liability it is requested that the insurance industry bring the implications to the attention of the manufacturing industry. The insurance industry certainly do have a role but my Department also are preparing a discussion document on this directive which will give an opportunity to all concerned to fully acquaint themselves of the issues involved.

In relation to educational qualifications of brokers it is recommended that a third level part time release course with appropriate VECs leading to qualifications would be worth-while. That is a worth-while suggestion. Part IV of the Insurance Bill, 1986, recently published and currently before the Dáil, sets out important new requirements in relation to insurance brokers and insurance agents. The Bill provides for the recognition of bodies of insurance brokers or individuals who have qualifications or meet requirements equivalent to those [1444] of a recognised insurance body. Broking bodies who wish to be recognised by the Minister must submit a scheme to him setting out in full the rules and requirements of membership of the bodies.

The Third Schedule of that Bill specifies that a scheme submitted by a body seeking recognition must, among other things, contain provisions in regard to the professional competence of members, including experience and academic qualifications. That is in the Bill and we are working on criteria for those who would not be members of insurance broking bodies so we hope to take on board the thrust of the recommendation. In setting educational qualifications for brokers I will, of course, have regard to the provisions of the European Council Directive of 1976 which deals with the freedom of establishment and freedom to provide services by insurance agents and brokers.

I would now like to turn to the second series of recommendations made by the committee — recommendations which require implementation by the State. The first recommendation was that a policy group should be established to co-ordinate the approach to the insurance industry. I am glad to say the Government have already taken action to implement this recommendation. An inter-departmental committee is being established on foot of a recommendation of the interministerial task force on employment. The committee have a remit to put forward specific recommendations to bring about a real reduction in the cost of employers' and public liability over a five year period. The mandate given to the committee requires them to report back to Government shortly. This determined action by the Government reflects their concern to bring about a competitive and equitable system of employers' and public liability insurance in the country.

Another major recommendation in this area is a new format for the blue book. The recommendation is that from 1987 onwards the blue book should be published in two parts, one part dealing with financial information and the other with customer-related information. As I said before I have some doubts about [1445] getting into very detailed information about customer information. The blue book is primarily a summary statement of assurance business transacted in any one year. The book is essentially a statistical manual for the supervisory authority, the practitioners and the insurance industry. The information contained therein arises from various statutory requirements in insurance legislation and regulations in regard to business transacted. It is essentially very much a supervision and solvency related book. While I am conscious of the need for better statistics it would be a separate exercise for the blue book to undertake this type of information.

The next issue I would like to touch on is the major recommendation on compulsory employers' liability insurance. What is recommended is a compulsory system based on no fault with the right to sue for negligence surrendered in return for compulsory cover. This is a very major proposal. It opens up a huge number of issues. First, it raised the issue of compulsion. While I recognise the principle that each employee has a right to cover the difficulty of compulsion is that we must first be satisfied that the premia will be at an affordable cost and that we have a system that will deliver this even in declined cases. The present evidence suggests that there is far from universal cover — a very high proportion of employers do not take out employers' liability. It is probably true to say that those who are insuring themselves are in the lower risk category. To extend full compulsory cover would appear to be introducing new costs for many companies and also probably raising the average cost. Until we have in place some system that guaranteed premia at an affordable cost and succeeded in containing the growing level of awards, compulsion raises many problems.

The second issue raised by the proposal is the surrender of the right to sue. Asking people to do this may cause some legal problems as to the constitutionality of the issue, whether it is constitutional to require people to surrender this right. [1446] That might not be in agreement with Article 34 of the Constitution. It would certainly appear that this process, if applied, would have to apply to all insurance and we could not single out employers' liability and public liability. If you do not have that element, namely, the surrender of the right to sue, then a no-fault system that did not involve that would seem to offer little hope of cost reductions. In other words, if the injured party could first claim the scheduled benefits under the compulsory scheme and then have an unrestricted right to sue, the end result would be that you would have a different structure of premium with employers having to pay additional private insurance to top up compensation under the compulsory system. So there is another real headache in that element of the proposal.

The third element of the proposal is the no-fault issue itself. Obviously to be cost reducing not only must there be gains in lower legal costs and in lower compensation payments, but these gains must outweigh the clear cost increased element in the system. Cost increasing elements in a no-faults system include such things as no reduction for contributory negligence. It is reasonable to expect a growth of claims once no faults need to be proven in the case of a claim. It is also likely that the moral pressure to reduce risks which is possible under a no claims type bonus procedure would be lost. Implicitly of course you are shifting the cost onto the safer industries and safer employers under a no-faults system. The can has to be carried by those who are safe. Again that principle causes some problems.

While I am not throwing cold water on this proposal I am concerned about the serious implications of it. It is a very radical proposal and I have seen a quotation where other countries have discussed this and where they cited it as equivalent to a new social service for employees. I am continuing to look at it and I am aware of the international system cited, but as yet my Department have no hard evidence that any of these systems has produced cheaper insurance [1447] which is the bottom line that we are after. I hope I have not gone on too long on that issue but I think it is a major recommendation of the report and I wanted to deal with it at some length.

The committee recommended also that the Insurance Bill, 1986, should contain a number of specific proposals in relation to the regulation of financial intermediaries. Senators will be aware that the Insurance Bill, 1986 is currently circulated. Section 37 of the Bill provides that a person may not carry on a broking business unless he is a member of the body of brokers recognised by the Minister and so on. I mentioned that earlier.

The Third Schedule to the Bill specifies that the scheme of operations submitted by a body seeking recognition in respect of its members shall contain provisions in relation to professional indemnity insurance in respect of members, certification of solvency in respect of members, the requirement for a £100,000 bond to protect clients and the operation of separate accounts. I am satisfied that the provisions in that Bill more than adequately meet the recommendations of the joint committee.

Finally I will turn to some other measures which the committee raised in relation to insurance cost, for example, the termination of the 1 per cent levy on the turnover of insurance companies, the introduction of a standard scale of charges for brokers commission, and a more active rule for the Department of Industry and Commerce in controlling premium rates of insurance companies. In relation to the 1 per cent levy, the problem there is obviously that it is providing yields and it could hardly be stated that, given the current pressure on public finances, such a reduction would have to be made good by additional taxation or cutbacks in Government spending. Regarding the proposed standard scale of charges for brokers commission, the Insurance Bill, 1986, confers on the Minister power to reduce the rate of commission paid to insurance intermediaries where he is of the opinion that they are excessive. These powers can be brought [1448] into effect at any time, should the interests of policyholders so warrant. The suggestion for a flat rate of fees instead of the present system of brokers commission has merit and is one which my Department will pursue with the insurance industry through liaison meetings with the Insurance Industry Federation.

In regard to the recommendation for a more active role by the Department in controlling premium rates and commissions, Senators will be aware of the Government's decision to abolish statutory price control. In general, the large increases in insurance premia in recent years have occurred in those classes of insurance where the greatest losses have been incurred. Influencing the factors which give rise to the high costs of insurance is much more likely to be effective than controlling the price of insurance, as price control can have the effect of reducing the availability of cover, often for those who most need it. Our experience of price control has proved that it has been a major benefit where it was operated. The joint committee made several recommendations in relation to legal reforms and these are ones which I support fully. These recommendations fall into the area of the responsibility of the Minister for Justice. I would, however, be sympathetic to the recommendations in general and strongly support the recommendation for the abolition of the three counsel rule in personal injury cases.

It has been estimated that legal costs, including expert witness costs, represent 20 per cent of the total costs in claims paid by insurance companies. Senator Ryan suggested figures that seem to be much lower than that, but this is the information we have from one insurance company. In cases set down for court hearing, legal costs may be as high as 40 per cent. While Senator Fitzsimons expressed the opinion that it was not unreasonable to have costs at 20 per cent, when you get into 40 per cent legal costs on court cases you are really running very high. Considerable savings could result from the abolition of the three counsel rule. This [1449] practice is difficult to defend given that, as far back as 1977, the UK Bar Counsel of its own accord abolished its two counsel rule. I understand that in the UK it is quite usual for junior counsel to appear on their own in the majority of High Court cases. I believe that one counsel on each side is adequate in the majority of cases arising in Ireland and I intend to pursue this matter both with the Minister for Justice and with the Irish Insurance Industry Federation.

The committee made recommendations in relation to business security, rates remissions for properties and funds for malicious damages. These matters are essentially outside my area of responsibility and I would not enter into a discussion on them.

In conclusion I should like to thank the committee for a very worthwhile report. The committee put forward very sensible suggestions which will inform the thinking of my Department as we attempt to tackle the very difficult problem of the cost of insurance.

Question put and agreed to.


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