Insurance Bill, 1987: Committee Stage (Resumed).

Wednesday, 11 May 1988

Seanad Eireann Debate
Vol. 119 No. 10

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Debate resumed on amendment No. 10:

In page 6, paragraph (a), line 46, to delete “ordinary post” and substitute “registered post”.

An Leas-Chathaoirleach:  We resume on amendment No. 10. Amendments Nos. 10, 11, 12, 14 and 15 are similar and may be debated together.

Mr. Hogan: Information on Philip Hogan  Zoom on Philip Hogan  Amendments Nos. 10, 11, 12, 14 and 15 refer in particular to the importance of having due notice given to the people who are going to be affected by delivery of post. Section 4 refers to serving very serious documents in the case of a company incorporated or a society registered in the State. Any notice, or requisition, or document to be sent to those people is of such importance [876] that it necessitates registered post in order to ensure that no legal difficulties will arise in relation to the company or society getting the notification to the consumer or vice versa in a very serious situation, such as the service of documents.

Minister of State at the Department of Industry and Commerce (Mr. S. Brennan): Information on Seamus Brennan  Zoom on Seamus Brennan  The Senator's amendment, if accepted, would substitute “registered post” for “ordinary post” in relation to the service of notice, documents, and so on, on persons under the Act. In statute law, it is invariably the case that references to the service of documents are references to ordinary post and not to registered post. An obvious example here would be the 1963 Companies Act. In any event, there is no obligation imposed on the Minister to use the methods described in section 4. Section 4 provides quite simply that any notice may be served by ordinary post, in other words, the Minister may use any method. He is not tied to one particular method for the service of documents.

In reality, the Minister, as supervisory authority, would decide in particular circumstances on the most appropriate means of delivery for service of documents. This could include ordinary post, or registered post, depending on the circumstances and location of the addressee. It could include delivery by hand, with registered signatory of receipt, if required. It could include a telex in the interests of speed, or registered facsimile transmission of documentation where appropriate, which is very much the modern method. The important point is that the most appropriate means of communication will be determined having regard to individual circumstances. Accordingly, I request the Senator not to proceed with the amendment. The Minister should be free, in my view, to determine the appropriate course of action in particular cases. In the event of a dispute it would obviously be a matter for the court to decide if the documents were properly served. However, this is extremely unlikely to occur in practice.

[877]Mr. Hogan: Information on Philip Hogan  Zoom on Philip Hogan  I certainly see that the Minister would want discretion in the way in which he could serve documents on an undertaking. He will have to admit that a dispute could arise if a document had not been received or there was no receipt for it on delivery. I will not proceed with these amendments. I wished to highlight the technical difficulties that might arise in the event of a dispute. I was merely trying to protect the Department and the Minister from a dispute. If the Minister is happy about it, I am quite happy about it.

Amendment, by leave, withdrawn.

Amendments Nos. 11 and 12 not moved.

Government amendment No. 13:

In page 7, line 9, to delete “company” and substitute “society”.

Mr. S. Brennan: Information on Seamus Brennan  Zoom on Seamus Brennan  This is an amendment to section 4. In page 7, line 9, we are, as Senators can see, deleting “company” and substituting “society”. Again, this is in the nature of a technical drafting amendment. Paragraph (c) refers to a foreign registered society as opposed to a company. The amendment is purely for tidying up purposes.

Amendment agreed to.

Amendments Nos. 14 and 15 not moved.

Section 4, as amended, agreed to.

Sections 5 and 6 agreed to.

An Leas-Chathaoirleach:  Amendments Nos. 16 and 17 are related and may be discussed together.

Government amendment No. 16:

In page 7, lines 27 to 30, to delete subsection (1).

[878]Mr. S. Brennan: Information on Seamus Brennan  Zoom on Seamus Brennan  The purpose of Amendment No. 16 is to delete subsection (1), lines 27 to 30, on page 7. The reason for this amendment is that subsection (1) which, as Senators can see, provides for payment of fees in connection with applications for ministerial recognition of brokers under section 38 is no longer necessary. The revised scheme of former ministerial recognition of brokers' bodies will be proposed in Part IV of the Bill. That will not require the payment of fees. This subsection is, therefore, superfluous and I think we can safely delete it.

Mr. Fallon: Information on Sean Fallon  Zoom on Sean Fallon  In the case of a broker who decides that he should not be a member of a recognised body, I assume that he too will not have to comply with any fees.

Mr. S. Brennan: Information on Seamus Brennan  Zoom on Seamus Brennan  It is the same for all.

Amendment agreed to.

Government amendment No. 17:

In page 7, line 33, subsection (2), to delete “in respect of the authorisations”.

An Leas-Chathaoirleach:  Amendment No. 17 has been discussed with No. 16.

Mr. S. Brennan: Information on Seamus Brennan  Zoom on Seamus Brennan  This is a very technical amendment for clarification. Subsection (2), as worded in the published Bill, implies that authorisations are renewed annually and this is not the case. In accordance with the relevant EC Directive, once an authorisation is issued it remains in force in perpetuity, provided the undertaking authorised continues to comply with the relevant solvency and other requirements imposed in law. Deleting these words will remove any potential for confusion in the eyes of the reader.

Amendment agreed to.

Section 7, as amended, agreed to.

Section 8 to 10, inclusive, agreed to.

Question proposed: “That section 11 stand part of the Bill.”

Mr. Fallon: Information on Sean Fallon  Zoom on Sean Fallon  Section 11 deals with the submission and publication of returns and documents by insurers. I would like to know from the Minister if he has found any problems in this area with insurance companies generally. If he has found that companies, for one reason or another, do not submit various documents and returns to him what action, if any, has he taken? I would like him to comment generally on the attitude of companies to this section. Is he happy that insurers in the past have been co-operative? I would like a general summary from him on this section.

Mr. S. Brennan: Information on Seamus Brennan  Zoom on Seamus Brennan  We have not had any great difficulty in this area other than one very celebrated case where documents had to be sought from one of the companies in administration and were subsequently got under suggestions of court action, but that was an exception. The general position is that we have no difficulty in this area. This simply now encompasses in statute what, in effect, has been happening anyway. The companies have been very co-operative and this information has been freely provided but we felt the need to encompass it clearly in substantive legislation, which has not been the case before.

Mr. Hogan: Information on Philip Hogan  Zoom on Philip Hogan  I am glad Senator Fallon referred to this. I have no doubt that the Minister had difficulties in the past in getting information and in having returns disclosed and documents sent to his Department in relation to particular companies in administration. It is essential that the Minister should have whatever powers are necessary to ensure that a company in a doubtful solvency situation is required under legislation as tight as possible, to send to the Minister and his Department returns and documents which are necessary to bring about a greater realisation of the difficulties of [880] the firm. That would assist the administrator in carrying out the full administration of the company to the benefit of the consumer. It is essential in view of the fact that policyholders are paying a massive contribution each year by way of the 2 per cent levy to a company administrator in order to pay for the administration of the company. I would take a poor view if the Minister had not got ample powers to get these documents and returns. I am glad that the matter was raised and that the Minister has given us some assurance. I do not think we should let this opportunity pass without saying that there were difficulties in the past. I hope that, as a result of this Bill, similar difficulties will not arise in the future.

Mr. Ferris: Information on Michael Ferris  Zoom on Michael Ferris  This section is welcomed by the responsible people in the industry. They feel it is a power the Minister should have in the public interest and we, as legislators, agree. The people in the industry to whom I have spoken have no problems with this section which confers on the Minister power to send for documents, to examine them, to publish them if he requires it to be done, and also to lay them before the House when the public interest is at stake. The people in the industry have no problem that I am aware of and I have had many discussions with them on this Bill. I welcome the section.

Mr. S. Brennan: Information on Seamus Brennan  Zoom on Seamus Brennan  I thank the Senators for their welcome for the section. It is important that we encompass it now in legislation so that there is no doubt about it. There has not been any real problem in the past, with the exception of one celebrated, isolated case.

Question put and agreed to.

Government amendment No. 18:

In page 8, between lines 36 and 37 to insert new paragraphs as follows:

“(g) the prohibition or limitation [881] of investments of a specified class or description,

(h) the percentage of distributed surplus allocated to policyholders”.

Mr. S. Brennan: Information on Seamus Brennan  Zoom on Seamus Brennan  I hope the scope of the two new paragraphs is clear. This deals with the power to make regulations to forbid investments in certain areas. Secondly, it deals with the maintenance of certain levels of bonuses, and so on. With regard to the proposed paragraph (g), I would like to emphasise that this is an enabling power only and, before any regulation will be made, full consultation will take place with all interested parties in the insurance industry. The proposed paragraph (h), which would give the Minister power to lay down regulations governing the distribution of surplus by life insurers, is a desirable protection for policyholders. Other EC insurance supervisory authorities already have similar powers available to them. For example, allocations to policyholders are covered in detail in UK legislation.

The regulation envisaged under the paragraph could require an insurer to notify the Minister if he proposes to make no allocation to policyholders or if he proposes to make a lower allocation than before. This will help to protect the position of policyholders in that such a reduction in bonus payments could indicate that an undertaking was experiencing some financial difficulty or, indeed, manipulation of funds in favour of distributions to shareholders at the expense of policyholders, that is, asset stripping which would frustrate the reasonable expectations of policyholders as to the surplus distribution which should be made to them.

Mr. Hogan: Information on Philip Hogan  Zoom on Philip Hogan  I find it very difficult to understand the insertion of this paragraph into the section. I would like to ask the Minister what difference the insertion of the new paragraph (g) would make in view of the fact that paragraph (c) basically deals with the nature and spread of assets representing underwriting liabilities. The limitation of investments of a [882] specified class or description is covered under paragraph (c). Perhaps the Minister could give us the benefit of his advice on the difference between these two paragraphs.

Mr. S. Brennan: Information on Seamus Brennan  Zoom on Seamus Brennan  I understand the point the Senator is making. It is very valuable. First, this is an enabling section in which the Minister takes power to lay down this prohibition or limitation of investments of a specified class or description if he decides it is in the public interest to do so.

It is obviously desirable that policyholders' funds should be invested in appropriate places and in appropriate types of investments. If the Minister of the day felt that an undesirable class of investment was being considered by an insurance company, he could say that was not the type of investment in which they should be investing policyholders' funds. The purpose of the measure is not in any way to interfere but to give the Minister some reserve functions if, for example, an attempt was being made to invest the policyholders' funds in something unusual like oil wells in the Sahara or something of that nature which one would not normally regard as an ordinary, sensible investment for policyholders' funds.

The EC have directives in this area and they cannot be contravened. The Minister would be acting ultra vires if he were to do that. We feel that directives may be changed in the future to cover solvency margins, assets which would not be covered at present, and that enabling powers could, therefore, be used if necessary at that time.

Mr. Hogan: Information on Philip Hogan  Zoom on Philip Hogan  I was concerned that the insertion of this paragraph might be against the rules of the EC directives and I am glad to hear the Minister saying that they are not. I am concerned that the Minister should have powers to direct any company to invest their money in any way at any time. In Ireland at the moment there are fund managers in all insurance companies who do a very good job. They [883] all have contact with international investors and have access to advice from fund managers of an international calibre. The returns that policyholders get on their investments are second to none and the performance has been extremely good over the past 20 years or so. As a result of the Stock Market collapse last October, returns took a downward trend and it would be unusual if that did not happen. Fund managers have a wide range of investments available to them.

I am concerned that the freedom of companies to invest their policyholders' moneys in a particular way would be curtailed by a ministerial power. I would like to see the regulations and guidelines where the Minister could intervene, tightened up and more firm guarantees given in relation to the investment of this money. After all, at the end of the day, it is the policyholder who must be protected and it is the policyholder's return that is important. He or she has decided to invest money in a particular insurance company and they expect to get the best return that is available from that company. The Minister should not interfere unless guidelines are laid down which suggest that he could interfere in relation to the investment of the policyholders' money.

Mr. Ferris: Information on Michael Ferris  Zoom on Michael Ferris  This is an interesting section. I realise it is an enabling section which empowers the Minister to make regulations if he so desires. First of all, I want an assurance from the Minister that, when he makes these regulations, they will be laid before the Houses of the Oireachtas so that we will have an opportunity to debate them. We now come to the fundamental principle involved, particularly with the new suggested subsection from the Minister about his rights of prohibition or limitation of investments of a specified class or description. In the Minister's reply he identified an investment abroad, in Morocco or some such place.

It is not unknown that a famous banking institution in this country had a major investment in Manhattan. Many of us [884] think that investment could have been made at home and the profits made by investors in Ireland. The directors of the bank decided that a much larger return was available by investing outside the jurisdiction. There is a policy within the IDA to entice international industrialists to come here. We know that the repatriation of their profits to their investors is considered by all of us on this side of the Atlantic to be the black hole where all our money seems to go. Here, for the first time a Minister in this Government is taking unto himself power to limit that but only in regard to the insurance industry. May I take it that it is the Government's intention to have similar powers invested in the relevant Ministers in various other areas of the economy which would enable them to restrict the investment abroad, for greater profit, of hard-earned profits in this country. This practice creates tremendous unemployment in our own country. We would like to see all the money made in this country invested in this country, thereby creating jobs.

This is a fairly strong power the Minister is giving himself. It is one that I welcome because it is important, particularly in the areas of insurance and banking, that we should have some say in where the funds might be invested. Is it on the grounds of risk that the Minister has reservations, or is it the principle of the movement of money outside of our shores for investment elsewhere, whether in Morocco or in Manhattan, that the Minister is concerned about? I would like to see as much money as possible invested at home. This is an important power but if it is limited to the insurance industry and their investments it is only touching the tip of the iceberg because unfortunately this situation prevails in many areas at the moment.

Mr. Fallon: Information on Sean Fallon  Zoom on Sean Fallon  I agree with Senator Ferris that this is an interesting section of the Bill and it is also very important. I want to query paragraphs (b) and (d). The Minister has already referred to an example and we know he was talking about the PMPA. I can recall a previous [885] example — Equity Insurance. The infamous bush telegraph of the industry was telling us of problems within these companies for a long time. I can recall saying at one stage to a prominent Minister that if the people who audit the accounts of the Vehicle in General in England, a company with a turnover of about £20 million in premiums, audited the accounts of the PMPA at any time they would be asked to stop trading. I made that statement as, indeed, did many other people in the insurance industry. We all know what happened. The problem with the valuation of assets of an undertaking is that people may say that they have property in Cork worth £500,000 and property in Dundalk worth £225,000 when, in fact, that may not be the case. How are the Department to know what is correct? This is a problem that will arise and has arisen in the past. It is something which must be investigated in great detail.

As regards underwriting liabilities, the provision for claims that are outstanding can be drastically understated. I can recall a case in County Westmeath where a company estimated a claim at around £50,000 and it was settled for £275,000. These things are vital to the Bill and the whole supervisory role the Department of Industry and Commerce have in regard to insurers. The Minister should ensure at all times that the Department have at their finger tips the up-to-date correct information with regard to assets, underwriting liabilities, the provision for outstanding claims and so on. I welcome the fact that, like the previous section, at least this section is now clearly inserted in the Bill and will become the law of the land in future.

Mr. S. Brennan: Information on Seamus Brennan  Zoom on Seamus Brennan  I thank Senators for their comments on this section. I want to say to Senator Ferris that section 8 of the Bill lays down that any orders or regulations made under the Bill obviously have to be submitted to the Houses. The Oireachtas will get a second bite at this in the sense that the regulations would be laid before the Houses. Any unreasonable requirement could at that stage [886] be prevented by the Dáil and Seanad if they so wished. That was one of the points raised.

The other point I want to make is that what we are trying to do here is to protect policyholders' funds, to make sure that they are not abused in any way and to make sure that they are not invested in such a way as would be unreasonable, dangerous or in any way likely to damage the cause of policyholders. It is not the Government's, or any Minister's intention, to interfere with normal commercial decision-making — I want to stress that very carefully — or to interfere in any way with the investment strategy of the companies. This is a reserved power which enables the Minister, if something unusual happens or an unusual investment is made, to decide that it is not in the policyholder's interest to engage in those type of developments. You could conjure up all sorts of outlandish suggestions. I heard Senator Fallon talk about three-legged race horses and things like that. That might be a bit extreme. The powers will not be used to direct investments in a particular way. They will almost certainly be used to say what investments should not be undertaken and that decision will be taken on the basis of the policyholder's interest.

I refer Deputies to the opening line in section 12 which says: “The Minister may make regulations for the proper exercise of his functions under the Insurance Acts in respect of the following...” It is clearly limited to the Minister's functions under the Insurance Acts and does not give him any broader remit other than protecting policyholders and supervising the industry under the Insurance Acts. It is an enabling section and the regulations will have to go before the Houses of the Oireachtas. As I have said, because this is an enabling power it will be used only in specific circumstances when it is felt that the interests of policyholders are not being protected. I cannot say that often enough. I appreciate the efforts that companies are making at present to comply with existing regulations. Indeed, it is not envisaged that this requirement will be used by the Minister in the near future.

[887] Senator Fallon mentioned property valuations and other matters. It might be unwise of me in a public forum like this to comment on former auditors of companies which are now under administration as there is legal action pending in this area. In regard to property valuations and so on, paragraph (b) of section 12 refers to the valuation of assets of an insurance undertaking and paragraph (c) refer to the nature and spread of assets. They address that issue. Section 13 will also allow independent verification. They are the points that perhaps worried the Senator.

I will just refer to what Senator Ferris said about the broader issue. The whole question of localised assets arises at the moment in the industry where 80 per cent of liability to policyholders in Ireland, 80 per cent of domestic investment by the insurance industry, must be invested in the country. The Senator raised broader issues which do not come within this Bill, with the exception perhaps of repatriation of profits. Obviously any Government would want to keep a linkage between the profits made by a company here and the jobs which they create out of those profits. At the same time, we live in the EC which is completing its internal market and any ill thought-out moves to prevent repatriation of profits or to insist on private industry investing in certain areas, any interference in that way in the freedom of companies to make decisions on how to handle their funds, could have the opposite effect because the company would not have to stay here if they felt that the requirements were unnecessary.

Business today is very global and businesses can and do move to where they find the most attractive environment. I appreciate the Senator's concern about the need to translate profit-making by companies into real jobs. At the same time, you have to be very careful in tackling that issue not to send out any messages to companies who might be considering Ireland as a location that they are not welcome here. They should feel that, whatever funds they make from [888] doing business in Ireland, they are free to do with those funds, by and large commercially speaking, what they wish. Any other message coming from this country, at this time — this is very much a strong personal view — would be crazy.

Mr. Ferris: Information on Michael Ferris  Zoom on Michael Ferris  I accept the Minister's reasoning on this. It is the argument that has been used for some time. I think the Minister is on record as saying that he would like companies to consider this country in the first instance because naturally it would be in everybody's interest if they invested profits here which would create jobs. The Minister has reassured the House that 80 per cent of insurance profits are invested within the State. It is with regard to the other 20 per cent that he is retaining the power in this section which he may bring into force. He has also clarified that it will apply in specific instances only. If the Minister is to stop somebody from within that 20 per cent bracket from investing outside the State a regulation will have to be brought before the House. It would be specific to a particular stoppage that he considers desirable in the interests of the policyholders. Does that mean that all the companies will have to submit to him proposals on what their external investments will be? If he is happy, none of us will know anything about it and it will continue. It is only if he is unhappy that the Houses of the Oireachtas will become aware of it. Is that the kind of procedure that will be followed?

An Cathaoirleach: Information on Tras Honan  Zoom on Tras Honan  For my information, are we still on amendment No. 18 to section 12?

Mr. Ferris: Information on Michael Ferris  Zoom on Michael Ferris  We are. It is a Government amendment to add a new subsection which prohibits or limits investments of a specified class or description.

Mr. S. Brennan: Information on Seamus Brennan  Zoom on Seamus Brennan  On a point of information, and to make it clear because there might be some confusion here, first it does not apply only to the 20 per cent; it applies to the 100 per cent. Equally, a bad investment or an unusually risky [889] investment proposed to be made in Ireland would be as dangerous as one to be made in the Sahara or somewhere else. Therefore, it applies across the board. Secondly, I am happy that under the various sections of the Bill, the Minister has ample powers to get the information he needs on which he can base a decision.

Amendment agreed to.

Section 12, as amended, agreed to.

Government amendment No. 19:

In page 8, before section 13 to insert a new section as follows:

13. — An undertaking shall maintain at its registered office or place of business in the State proper records of all business carried on by the undertaking in the State under its authorisation.”.

Mr. S. Brennan: Information on Seamus Brennan  Zoom on Seamus Brennan  The meaning of this proposed new section I hope is evident to Senators. While it is, of course, implicit in the area of supervision of insurance undertakings that proper records are maintained in the State relating to business carried on here, this is not an explicit requirement of existing insurance legislation. The amendment will copperfasten the position in substantive insurance law. It is simply a declaratory provision. It is possible the question could be raised whether this allows for the holding of computer-based data files and records by insurers with access from their offices to remote data bases. For example, this section does cover a UK branch insurer in Dublin connected to its head office main frame computer in London, once the necessary records can be produced to the Department from the branch establishment in Dublin. That is the new section.

Mr. Fallon: Information on Sean Fallon  Zoom on Sean Fallon  Can I assume from what the Minister said that before an undertaking can commence business, or if it is operating in this country it must have [890] a registered office in the country? Is it definite that it must have a registered office here? I would like to know that for my own information.

Mr. S. Brennan: Information on Seamus Brennan  Zoom on Seamus Brennan  If the company is doing business it would have to have a registered address in the State and the information the Senator is now seeking would have to be kept at that registered address.

Mr. Fallon: Information on Sean Fallon  Zoom on Sean Fallon  On the section covering general powers to require information, may I assume that this section would only come into play if the Minister had reason to suspect that an insurance company was not complying with the sections in the Bill? I wonder if a minimum period should be allowed for the undertaking to respond? I say that because there are very serious penalties imposed for failing to comply. This is a general query that the Minister would allow appropriate time because of the huge penalties involved.

Mr. S. Brennan: Information on Seamus Brennan  Zoom on Seamus Brennan  I would like to deal with that now but the Senator seems to be dealing with section 13 proper. What we have here are three new sections. The Senator has raised very good points and I will come back to them. We are proposing three new sections, amendments Nos. 19, 20 and 21, to be inserted before the existing section 13. The first amendment deals with the question of laying it on the company to make sure that they keep records in their Irish office and that they are available here.

An Cathaoirleach: Information on Tras Honan  Zoom on Tras Honan  These are three new sections and maybe that is why there is confusion.

Mr. Hogan: Information on Philip Hogan  Zoom on Philip Hogan  I was glad to hear the Minister say foreign companies that have subsidiaries in Ireland would have access to main frame computers. That will be very important to future development of insurance companies, and their accessibility to this country when we are open — tariff free and barrier free — to the internal market of the European Community. Although we are sensitive to the [891] insurance industry in relation to the Single European Act, nevertheless, we are pointing to the day when other companies now on mainland Europe will seek to do business in Ireland.

For the purpose of keeping records and keeping tabs on companies that have their headquarters elsewhere, how is the Minister going to get sufficient information from the registered office in this country to ensure that an insurance company which has its head office elsewhere is a bonafide company, that it has enough assets and the least possible liabilities, in the interests of its policyholders, so that we do not have a debacle like we had in recent years with two companies at present under administration. The safeguards and the records that the Minister requires from companies that come to this country as a result of our opening up to the European frontiers is very important for the policyholder. I would like the Minister to explain what procedure he would adopt in those cases.

Mr. S. Brennan: Information on Seamus Brennan  Zoom on Seamus Brennan  We apply the same procedures to every company based here, whether it is a branch or a head office, in that we get the annual return from the company, which is a very detailed document covering solvency margins, assets, liabilities, reserves and a whole range of financial information one would expect. Secondly, if we deem it desirable, we are entitled to seek information throughout the year at quarterly intervals or half yearly intervals. We would do this on a regular basis. Every so often we select companies for specific consultancy review, almost on a roll-over basis. We pick a company every so often and say we are going to have consultants look at it and give us an opinion on its reserves and financial strategy.

I am happy that any branch based here has to make its annual returns. Section 21 (2) of Statutory Instrument No. 115 of 1976, reads:

Annual Returns to Minister and Register of Technical Reserves.

An undertaking which is the [892] holder of an authorisation shall furnish to the Minister annually or at such more frequent intervals as the Minister may request, such returns and documents in such form and manner as he may require, as are necessary to enable the Minister to verify that the technical reserves mentioned in Article 14 are being maintained and to enable him to comply with Article 13 of these Regulations.

I am satisfied that the level of disclosure of branch offices here is satisfactory. The Senator touched on this and he was right.

We see what is happening with the financial services legislation in the United Kingdom, for example. The insurance business in financial market places is increasingly getting very complex and global. What we have to do here, and in our own Department in particular, is to make sure we keep up with those trends internationally to ensure that our reporting requirements are as sophisticated and as modern as they possible can be. They are fine today, but they may not be in two years time. One cannot write legislation for what might be, but I am conscious — and I appreciate the Senator raising it again — of the changing nature of reporting systems. We just have to look at the advent of technology to grasp that. I thank the Senator for raising this point.

Mr. Hussey: Information on Thomas Hussey  Zoom on Thomas Hussey  Is the Minister concerned only with the returns of the companies operating within this jurisdiction, or must he have the returns from say, a company based in England or Canada?

Mr. S. Brennan: Information on Seamus Brennan  Zoom on Seamus Brennan  We get the information I have described from the Irish branch. If they have a head office in London, we also get the published accounts of the London office. We get detailed annual returns for the branch or the company operating here, plus, if they have a head office, their annual accounts. Obviously, we do not go into the same detail with the head office accounts.

[893]Mr. Hussey: Information on Thomas Hussey  Zoom on Thomas Hussey  It would be important to know how the company overall was functioning.

Mr. S. Brennan: Information on Seamus Brennan  Zoom on Seamus Brennan  In that regard we get the published accounts which are enough at the present time.

Amendment agreed to.

An Cathaoirleach: Information on Tras Honan  Zoom on Tras Honan  Amendments Nos. 20 and 21 are related and may be discussed together.

Government amendment No. 20:

In page 8, before section 13, to insert a new section as follows:

14.—(1) Every undertaking authorised to carry on life assurance business —

(a) shall maintain an account in respect of that business and the receipts of that business shall be entered in the account maintained for that purpose and shall be carried to and form the life assurance fund, and

(b) shall maintain such accounting and other records as are necessary for identifying—

(i) the assets representing the fund maintained by the undertaking under subparagraph (a) of this subsection, and

(ii) the liabilities attributable to that business.

(2) The provisions of subsection (1) are without prejudice to the obligations of an undertaking to maintain such records as are necessary for the preparation and submission to the Minister of separate accounts and statements for any class or part of a class of business as required from time to time by the Insurance Acts.

Mr. Fallon: Information on Sean Fallon  Zoom on Sean Fallon  May I assume that those [894] new sections will be numbered in the Bill?

An Cathaoirleach: Information on Tras Honan  Zoom on Tras Honan  Yes.

Mr. S. Brennan: Information on Seamus Brennan  Zoom on Seamus Brennan  This is a new section to be inserted before section 13. Basically it deals with policyholders' funds being kept separate from shareholders' funds. That is the purpose of subsection (1). Section 22 (1) of the Bill introduces the right to amalgamate the industrial branch, IB, and ordinary branch, OB, life assurance funds maintained by an assurer with the combined fund being liable for all life assurance liabilities of the undertaking. This subsection introduces the requirement to separate the assets representing the combined fund from the assets representing the shareholders' funds and requires sufficient accounting and other records to be maintained as are necessary to identify the assets representing the combined fund and the corresponding liabilities. The effect here will be that the assets which represent the combined fund may only be used for the purpose of the life assurance business and that a transfer out of the fund may only be made after a surplus has been established in an actuarial investigation. The intention is to isolate and protect policyholders' funds as far as possible from shareholders' funds.

The 1986 regulations already require life assurers to submit separate returns in respect of policyholders' and shareholders' assets and liabilities. Subsection (2) specifies that the provisions of subsection (1) are without prejudice to the obligations of an undertaking to prepare separate accounts for any class or part of a class of business as required by insurance legislation. This will enable the Department to continue to receive returns in respect of each IB and OB fund as required by the 1986 regulations. That is basically amendment No. 20, which is this practice of keeping as separate as possible policyholders' funds and shareholders' funds.

An Cathaoirleach: Information on Tras Honan  Zoom on Tras Honan  Before I call on [895] Senator Hogan, would you clear amendment No. 20 (b) (i) with me? Should that be subparagraph (a) or paragraph (a)? Is the “sub” right there?

Mr. S. Brennan: Information on Seamus Brennan  Zoom on Seamus Brennan  I do not think it makes much difference. It refers clearly to “(a)” which is (1) (a) above.

Mr. Hogan: Information on Philip Hogan  Zoom on Philip Hogan  This amendment is of a technical nature. In view of the involvement of banks and building societies in the insurance business, and setting up their own life assurance companies, is there a separation of assets and liabilities in relation to the Bank of Ireland, or the Allied Irish Bank, or building societies, getting involved in insurance business? Would they be in a position, as financial institutions, to transfer shareholders' dividends? If they were shareholders of the Bank of Ireland, would they receive a dividend out of the life assurance company or the life assurance arm of the Bank of Ireland Group?

I am extremely concerned at the recent development in relation to the involvement of the banking and building society sectors in the area of life assurance, where you have roaming the countryside tied agents who have preferential status in relation to accessibility to information by delving into consumers' bank accounts, and by delving into the privacy of customers' accounts. This practice is not in keeping with the competition which is essential in the interest of the policyholder and the consumer. I want the Minister to explain what would be the involvement, if any, of the building society sector in the life assurance market.

Mr. S. Brennan: Information on Seamus Brennan  Zoom on Seamus Brennan  This section deals with each undertaking that is authorised to carry on life assurance business. Irrespective of what the company is, or its ownership, whether it is owned by a bank or by another insurance undertaking, it still is an authorised insurer and, once it is authorised, this legislation will apply to it. The example the Senator gave of a [896] particular bank with a life assurance company would be transparent and at arm's length because the authorisation given to the new company which is separate has to be kept at arm's length and has to be transparent.

Amendment No. 20, which is a new section, would also make it a requirement of that company to keep policyholders' funds separate in a broad way from shareholders' funds to ensure that the ratio between both is kept at an appropriate level. The point I want to make is that it really does not matter whether it is the company the Senator quoted or another company. The law is the same because it is an authorised company. These companies must keep this separate arrangement.

Mr. Hogan: Information on Philip Hogan  Zoom on Philip Hogan  I thank the Minister for his clarification of this section, but I can assure him I will be raising the matter again on another section.

Amendment agreed to.

Government amendment No. 21:

In page 8, before section 13, to insert a new section as follows:

(1) The assets representing the fund maintained by an undertaking in accordance with section 14 (1)—

(a) shall be applied for the purposes of that business, and

(b) shall not be transferred so as to be available for other purposes of the undertaking except where the transfer constitutes reimbursement of expenditure borne by other assets (in the same or the last preceding financial year) in discharging liabilities wholly or partly attributable to life assurance business.

(2) Where the value of the assets mentioned in subsection (1) is shown, by an investigation to which Article 5 of the European Communities (Life Assurance Accounts, Statements and [897] Valuations) Regulations, 1986 (S.I. No. 437 of 1986) applies or which is made in pursuance of a requirement imposed under section 13 or 14 to exceed the amount of the liability attributable to the undertakings life assurance business the restriction imposed by that subsection shall not apply to so much of those assets as represents the excess.

(3) Subsection (2) shall not authorise a transfer or other application of assets by reference to an actuarial investigation at any time after the date when the abstract of the actuary's report of the investigation has been deposited with the Minister in accordance with Article 9 (1) of the said Regulations of 1986.

(4) Nothing in subsection (1) shall preclude an undertaking from exchanging, at fair market value, assets representing the fund maintained by the undertaking in respect of its life assurance business for other assets of the undertaking.

(5) A mortgage or charge shall be void to the extent to which it contravenes subsection (1).

(6) Money from the fund maintained by an undertaking in respect of its life assurance business shall not be used for the purposes of any business of the undertaking which is not life assurance business notwithstanding any arrangement for its subsequent repayment out of the receipts of that other business.

(7) No undertaking to which this section applies shall declare a dividend at any time when the value of the assets representing the fund or the solvency margin, as determined in accordance with any applicable valuation regulations, is—

(a) in the case of the fund, less than the amount of the liabilities attributable to that business as so determined, or

(b) in the case of the solvency [898] margin, less than the amount required by the European Communities (Life Assurance) Regulations, 1984 (S.I. No. 57 of 1984).

(8) In this section a reference to ‘the fund’ is to the total fund of assets maintained by an undertaking in respect of its life assurance business, not being shareholders' assets.”.

Amendment agreed to.

An Cathaoirleach: Information on Tras Honan  Zoom on Tras Honan  Amendments Nos. 22, 23 and 24 are related and may be discussed together.

Government amendment No. 22:

In page 9, to delete lines 1 to 3 and substitute:

“an actuarial investigation) as he may specify in relation to the undertaking itself;”.

Mr. S. Brennan: Information on Seamus Brennan  Zoom on Seamus Brennan  These amendments are largely technical and are to clarify the powers of the Minister to seek information and so on. Section 13 bestows general powers on the Minister to require information. The amendments now proposed do not change the scope of the provision. However, they clarify a number of aspects. First, a clearer distinction is drawn between information required of an insurance undertaking in relation to its own business and other information dealing with any connected body of the undertaking in circumstances where the links between the insurer and the connected body may have implications for the financial position of the insurance company. Obviously the Minister, as the insurance supervisory authority, would be entitled to any information in relation to a connected body which an undertaking may be expected to reasonably provide in order to assess the implications for the financial position of the insurer arising from the nature of the ties and commercial links, for example, in a group holding structure.

An amendment is also proposed to subsection (2) of this section to take account [899] of a technical accounting concept and to improve the precision of the wording implied. The amendment now provides that the Minister may require that returns, and so on, are certified or attested to as to their correctness. The original subsection referred to certification only. However, this has a particular accounting meaning in that certification can only take place in relation to matters of fact which have been established and would not be appropriate in relation to estimates, for example, however reasonable or accurate, or outstanding claims and liabilities. The additional wording will cater for this rather technical accounting concept.

The opportunity has also been taken here to delete reference to auditors or actuaries as the original wording of the subsection was unintentionally too narrow in this regard. If, for example, in assessing the solvency of an undertaking the Minister has reason to doubt certain property valuations, the appropriate person to express an opinion on those valuations might be a property valuer as opposed to an auditor or an actuary. The amendment by deleting the words “being an auditor or an actuary” does not affect the scope of the provision but it broadens its application in a desirable manner.

Amendment agreed to.

Government amendment No. 23:

In page 9 between lines 3 and 4, insert a new paragraph as follows:

“(c) such other information as the Minister may specify in relation to any connected body of the undertaking which the undertaking may reasonably be expected to provide.”.

Amendment agreed to.

Government amendment No. 24:

In page 9, line 5, to delete “by any person, being an auditor or actuary”, and substitute “or attested as to their correctness by any person”.

[900]Mr. Hogan: Information on Philip Hogan  Zoom on Philip Hogan  There is one question that perhaps would be more appropriate to the industry which expressed their concern, and that is the definition of an actuary or a person who would carry out the investigation. Could the Minister give a definition of “actuary” in the context of the Bill?

Mr. S. Brennan: Information on Seamus Brennan  Zoom on Seamus Brennan  It will be deleted in this section, so the problem has gone for the moment.

Amendment agreed to.

Question proposed: “That section 13, as amended, stand part of the Bill.”

Mr. Fallon: Information on Sean Fallon  Zoom on Sean Fallon  I raised the question of minimum periods in view of the penalties involved in the Bill. If the Minister is seeking information he should allow some time for the undertaking to respond.

Mr. S. Brennan: Information on Seamus Brennan  Zoom on Seamus Brennan  Under the section, the Minister has the power to require information and my understanding is that a reasonable period would have to be adopted. In practice, about six months would be the normal period, or three months for newly authorised companies. We could have a look at putting in something like that at a later stage. In page 9, section 13 (5) reads:

A requisition under subsection (1) may specify a date by which it must be met and if it is not met by the specified date the Minister may suspend or revoke the authorisation of the undertaking in any class or part of a class of business.

In other words, under subsection (1) where the Minister is requiring such information he may specify a date. The Senator is quite right in that the legislation does not actually lay down the date, but it permits the Minister to lay down a date. All I can do is put it on the record that in practice six months is the normal period and three months for [901] newly authorised companies. We will give some consideration to putting this in, but the time period may vary. Some information may be immediately to hand and it would be unreasonable not to get it immediately.

Mr. Fallon: Information on Sean Fallon  Zoom on Sean Fallon  I accept the point.

Mr. S. Brennan: Information on Seamus Brennan  Zoom on Seamus Brennan  On reflection, it may be safer to leave it to the Minister of the day to decide what a reasonable period is because information may be to hand immediately, and putting in a minimum period could allow people to hide behind a time limit which might not be reasonable. It could work both ways.

Question put and agreed to.

Mr. Fallon: Information on Sean Fallon  Zoom on Sean Fallon  I move amendment No. 25:

In page 9, before section 14, to insert a new section as follows:

“14.—(1) No insurer shall have a financial interest in an insurance brokerage.

(2) No group of companies shall have an interest in an insurer and at the same time have an interest in an insurance brokerage.”.

This amendment is self-explanatory. I believe we now have the definition of an insurance broker which is a person who acts with freedom of choice. It is unreasonable and unfair that an insurance company can also be involved in insurance brokerage or that the insurance brokerage can have a financial interest in an insurance company. There are a few such companies around. The Bank of Ireland has been referred to. Anybody who ever worked on the road for an insurance business will tell you that there is a life inspector. If you are asked to make a call on behalf of the bank manager, you can be sure it will be a successful call and the business will be written, but if it goes from a broker in [902] town or the agent down the road, it might not be successful. In fact, on the road, one must work hard to get business. Senator Hogan referred to this aspect.

There seems to be a conflict of interests here. The freedom of choice the Minister has spelt out for us does not operate. This is an amendment the Minister should take on board on Report Stage if necessary. To me it is a very reasonable amendment. We are talking about independent advice. One cannot give independent advice or freedom of choice if one has a vested interest in a company. It is quite clear to me that there is a real conflict of interests here and the Minister should take this seriously in the best interests of the Bill.

Mr. Hogan: Information on Philip Hogan  Zoom on Philip Hogan  I want to repeat what I said earlier. I agree totally with Senator Fallon. The words “vested interest” have been used. Obviously the banks have a vested interest in relation to bank accounts. Senator Fallon has explained it very well. There is no such thing as competition to any degree if you are dealing with a financial institution which for one reason or another, decides to tell a bank client that he or she needs life cover or life assurance of some description whether it is for the education of children or for a particular need in the future in relation to inheritance, tax liability or whatever.

Once a bank manager says to a consumer that there is a definite need for life cover or a need for an investment or savings policy of some description, it is very difficult for the consumer to exercise independent discretion and to analyse independently whether he or she is getting the best deal on the market. At the end of the day they are depending on a bank manager to sanction a loan, an overdraft, or whatever. There is a hold, as it were, on the client involved and a beholding to the manager involved. That is not always in the best interest of the consumer. A wide discretion of choice is essential to any consumer business. The Minister often spoke about that. The Director of Consumer Affairs carries out investigations into particular activities in [903] order to establish that there is not unfair competition.

What Senator Fallon has just said should be taken on board. We should seek immediately to eliminate the single agency approach of a particular financial institution, whether it be bank or building society, to get into the area of life assurance in order to make a quick source of finance out of the clients they have coming in to do other business in relation to mortgages or loans which they need. They are prepared to give an extra few pounds for life cover or life assurance in order to keep the bank manager happy if they get the loan.

Mr. Ferris: Information on Michael Ferris  Zoom on Michael Ferris  A good case has been made. Possibly we should await the Minister's response. Perhaps he will concede this amendment to his colleagues on the Government side. We lend our support to the concept of what is at stake here. It is a question of somebody being on the inside track and having inside information available to them which would make their selling of insurance, particularly life assurance, more advantageous than the ordinary man on the road, so to speak, who is working with an overall interest in his client but does not necessarily have the inside information about the person's finances. This is a question of fair trade and fair competition, or one group of people having additional information which is subsidiary but very important to have.

It is a question of whether we want to agree with the principle of fair competition in the interest of the customer, or whether we agree that, unless we have something like this written into the Bill, sectors which now deal with insurance, banking and other financial matters, will have additional information which will give them a decided advantage with a vested interest. That is what concerns Members of the House. Perhaps the Minister considers that the wording is not correct and will give us his assurance that he will come back with suitable wording on Report Stage, or perhaps he is satisfied with the wording of the amendment put [904] down by Senator Mulroy and Senator Fallon. It reflects the views of all sides of the House on this section. We hope the Minister has already made up his mind to be generous. He should be generous to his own colleagues.

Mr. Hussey: Information on Thomas Hussey  Zoom on Thomas Hussey  Before we get the assurance from the Minister that he is accepting this amendment I would like to say a few words in support of the amendment. In recent years in particular the bank manager has had a very unfair advantage in this area. We have seen the situation change dramatically in recent years with banks taking over building societies, banks going into the insurance business and mortgage endownment policies being sold by banks, building societies and everybody else. What is asked here by the people who have signed the amendment is very reasonable. I hope the Minister will see his way to incorporate this amendment into the Bill. The bank manager, in the position he holds in the local community, has a great advantage. He has access to the financial position of clients. He is the adviser to a number of people and his advice is readily accepted in matters pertaining to finance, insurance and so on. For that reason he has a very unfair advantage over brokers who are trying to compete in the market selling the same product but who have not got access to the information the bank manager has.

Mr. S. Brennan: Information on Seamus Brennan  Zoom on Seamus Brennan  Having spent some years in this House I always appreciated generosity from Ministers. Unfortunately, I cannot be very helpful today. The effect of this amendment would be to require that insurance brokerages would be held in totally distinct ownership from insurance companies. I am not convinced of the need for such an outright prohibition. In any event, the matter covered by the proposed amendment would not appear to be directly amenable to legislation in the way the Senators appear to wish it.

There are normal everyday commercial relationships between insurance companies and insurance brokerages. [905] The most obvious one is in relation to the procurement of business including a certain financial exchange of information in relation to premiums. Insurance brokers have agency appointments from insurance companies and they hold moneys in trust for insurers in many cases. Even more important there are, to my definite knowledge, a number of instances in the Irish market where insurers already have a proprietorial interest in insurance brokerages. The whole trend internationally is for more linkages of this kind to come about in response to consumer demand for increasing the integrated financial services operations. In recent times the council of Lloyds of London decided to remove the artificial barrier to ownership of not more than 26 per cent of a Lloyds broker by insurance company interests. Since then there have been several notable instances of links of this nature being forged in the Lloyds market.

Also, I should tell Senators that Union America, the large United States insurer, has now built up a substantial shareholding in one of the largest broking houses in the UK. As Senators can see, the whole trend internationally is in a direction directly opposite to the intention behind the amendment. In any event, I am not convinced that such links or shareholdings operate to the detriment of consumers, or have any potential impact on the solvency of insurance undertakings. I would be more concerned if the proprietorial interests were, perhaps, in the opposite direction with insurance brokers having the potential to control insurance companies' operations by virtue of shareholdings.

In response to any arguments about the potential to mislead clients by holding oneself out to be an independent brokerage while in reality being controlled to a significant extent by a particular insurance company, I would point out that it is our intention to include a specific requirement under the codes of conduct to be made under section 48 in relation to independent and impartial advice, the [906] avoidance of undue placement of business with any particular insurance company and the need to ensure the client's best interest at all times.

Furthermore, in the event that an insurer and an insurance brokerage, by virtue of a financial interest of one in the other or some other common link in the group structure, reach an agreement or arrangement that the so-called broker should channel business to the insurance company on a less than independent basis, any such arrangement would be classified under section 43 of the Bill as a tied agency agreement. This is because it would restrict the insurance brokerage's freedom to refer proposals of insurance to other insurance companies.

The immediate effect of this provision would be to require the brokerage to revert to tied agency status with all the restrictions and discipline which this would entail. In such circumstances the nature of the links between the insurance company and former brokers would be immediately transparent. There is also the consideration that under the Mergers Act, 1978, any significant moves by other financial institutions in relation to broking businesses would be subject to the notification requirements of that particular Act, that is, the Mergers Act, 1978. The Minister for Industry and Commerce would accordingly be able to assess the implications of any proposed significant shareholdings of the kind which I imagine is contemplated by the Senators in their proposed amendment under the criteria of the mergers legislation.

These criteria mention specifically the interests of the consumer and the extent to which the proposals would be likely to prevent or restrict competition, or to restrain the provision of any service. The Minister's consideration would, therefore, include the reasons for the proposal, details of any changes planned in the operation of any of the enterprises affected by the proposal and details of any other agreement, including any business channelling arrangements, any of these which would come about as a result of the proposed acquisition or merger.

[907] While emphasis on the various points would obviously vary from case to case, I can assure the House that the implications, particularly from the consumer perspective, would be vetted very carefully in situations where linkages between insurance companies and insurance brokerages were being proposed. I feel this is sufficient safeguard for the public and I would not be in favour of a specific and very inflexible statutory prohibition of any levels of cross-shareholdings and so on. Such a blanket prohibition could, as an extreme example, rule out desirable capital injections to improve the solvency of an insurance brokerage which would not be forthcoming from other sources.

I thank the Senators for putting this forward and I hope they understand the very strong reasons which I put before the House as to why to do it in this particular way, at this time, would run counter to what is going on globally and would hold us out as being very different in an international market place within which we have to live, an international market place in which this kind of cross-shareholding and cross-fertilisation is continually going on. It would lead us ultimately to having to reverse engines at a later date when we found ourselves up against total and open competition. The mergers legislation and the other areas which I have mentioned — section 43 of the Bill and the tied agency — will give sufficient safeguards to prevent the abuse which some Senators are pointing to.

With regard to the point that the manager of a bank somehow has an inside track, this amendment would not change that in any way because it is no different from where a bank manager holds an agency agreement. He may just be an ordinary agent with an agreement in his hip pocket and he would not have to have a massive shareholding to channel business. It is a separate argument as to whether bank managers should have that facility or not. The ownership of the insurance brokerage is an entirely different debate. You do not need to own an insurance brokerage to have the bank manager do what is being suggested by [908] Senator Hogan. He might do it. I have no direct evidence that they are doing that. If they are I will take the Senator's word for it.

Mr. Hogan: Information on Philip Hogan  Zoom on Philip Hogan  I cannot agree at all with the Minister's interpretation of the real world in relation to this practice that is going on, the practice which the Minister referred to and for which he has no evidence that it is going on. It is an understandable thing on the part of the consumers. If they have a case to make for another financial matter with a bank manager the corollary of that, the extension of that, is that the bank manager can say a certain requirement in relation to life assurance is essential in order to have that loan enacted or put into effect. The consumer has no choice and the element of competition is removed.

I certainly hope my colleagues will put this amendment to the House. It has nothing to do with what I am talking about in relation to the bank manager. In a group of companies and the direction in which the banks in particular are getting involved in building societies and in financial services such as insurance, I am totally against this from the point of view that it will bring about a situation sooner rather than later in which all financial business will be done by a very small number of financial institutions. The element of competition and certainly the benefit to the consumer will have gone out the window in the form of one, two or three financial conglomerates in a small country like ours.

I hope this amendment will be put so that we can establish in legislation the safeguards we see as essential to the consumer and show in this legislation that we are not happy with the direction in which the banking institutions are heading in gobbling up all aspects of financial services and removing the independence necessary and essential for the consumer.

Mr. S. Brennan: Information on Seamus Brennan  Zoom on Seamus Brennan  I want to separate the ownership of brokerages from the practice of, say, an individual bank manager channelling business. They are quite [909] separate to the extent that a manager can still be an agent and channel business to his favourite company in any case. He does not have to have a shareholding or otherwise in the brokerage to do that. That practice is quite separate and can be quite distinct.

Mr. Hogan: Information on Philip Hogan  Zoom on Philip Hogan  If a bank manager is not doing business for the company the bank owns, he certainly will be ticked off fairly quickly from headquarters about the direction in which his life assurance business should be going.

Mr. Fallon: Information on Sean Fallon  Zoom on Sean Fallon  He could be a separate agent.

Mr. Hogan: Information on Philip Hogan  Zoom on Philip Hogan  He could be a separate agent for another company. The Bank of Ireland at the moment owns Lifetime Assurance. Is the Minister saying that the Bank of Ireland manager in the local town is not going to do business for Lifetime or help the Lifetime agents in that area in order to do business for the benefit of the Bank of Ireland? That bank manager would find it very difficult to cope with the pressure that would be put on him from headquarters and he could find himself being transferred to another part of the country if he did not conspire to look after the affairs of the company he was working for. That is the kind of problem that might arise.

I can walk into my own Bank of Ireland branch and I see bank managers and assistant managers speaking with Lifetime agents and educating them to the possibilities they would have in writing life assurance business. I have my own account with The Bank of Ireland. That practice is taking place and we cannot push it under the carpet. The ownership of a life assurance company by a bank is putting the onus on bank managers to do business with that life assurance company. The same will apply in relation to unit linked and managed fund bonds in relation to the consumer. A consumer might get a much better return over a three or four year period on an investment in a unit linked bond and, because the bank manager refuses and makes it [910] difficult for a consumer to move money out of a deposit account in the bank, this will militate against the best interests of the consumer.

These are the practices that are taking place. We must awake to the fact that these people have too much power at the moment to interfere in the consumer area to such an extent that the best interests of the consumer are being militated against and the independent financial advice that is essential for the benefit of the consumer is being whittled away for reasons of vested interest.

Mr. Fallon: Information on Sean Fallon  Zoom on Sean Fallon  I support what Senator Hogan has said. If, for example, a customer of the Bank of Ireland wants to effect an insurance policy it will most certainly be a Lifetime policy. The point is that the manager may only have one single Life agency. Of course most of them have three, four or five. From now on they are obliged to be loyal to Lifetime. As single agents, I can see it will be impossible, in view of what we are saying in the Bill about agents, to stop an independent bank manager giving life assurance to his own Bank of Ireland company. I am more interested in the idea of the ownership of insurance brokerages by insurance companies, or vice versa. That is what I would like to have eliminated, if at all possible, because independent advice will obviously be lacking.

Perhaps the Minister would clarify again the question of this code of conduct he has referred to. I am not at all sure that it would be possible for independent and impartial advice to be given. I am not at all happy that it could be given. I am well aware of the changes in the whole global, financial market. Things are changing so rapidly throughout the world that, as the Minister says, if he took it on board now he might have to change it in six or eight months. I can understand the Minister's thinking that in time we might have to change it. I understand well, even at this point in time, the great changes which are taking place in world financial thinking and in the whole financial marketplace. It is changing weekly, with new [911] ideas, new groupings and new thoughts. I accept that fully. There is a changing global attitude in the financial marketplace.

Perhaps the Minister would come back to the question of this code of conduct. Obviously, if that could be implemented strongly it might go some of the way towards meeting what I have in mind, brokerages owned by insurance companies or vice versa. We seem to have dwelled on the Bank of Ireland and Lifetime, but FBD are an insurance company and yet they are an insurance brokerage as well. It seems to me there is some conflict. I would welcome further clarification on this code of conduct the Minister referred to.

Mr. Mulroy: Information on Jimmy Mulroy  Zoom on Jimmy Mulroy  The Minister's response to this amendment indicates that he has carried out extensive research. It is very hard to disagree with his explanation as to why he should not take the amendment on board because he has given us a very detailed and technical response to it. He points out that, whether or not he takes this on board will not affect the position of the bank manager acting as an agent. The message is coming across loud and clear that Senators are concerned about the privileged position of the bank manager and the effect this position has on small brokers and small agents throughout the country who are employing one or two people.

The other point to come across is that we are concerned about the banks getting into a monopoly situation on banking and insurance. I am pleased that this whole area has been discussed in detail and that we have got the message across to the Minister. I am sure that, under the code of conduct he mentioned, he will look into this area more closely and come up with some protection and see that the privileged position of the bank manager will not be abused.

Mr. S. Brennan: Information on Seamus Brennan  Zoom on Seamus Brennan  There are existing realities in the marketplace which I cannot ignore. There is no way we can turn the tide back on what is going on. I [912] think Senators know this better than I because they are dealing with it, although they are perhaps focusing more on the insurance aspect which we are talking about today. Who owns the insurance companies? Very often the banks own a large slice of them. Who owns the banks? Very often the insurance companies own a large slice of them. The Bank of Ireland owns Lifetime. The Bank of Ireland has a large slice of Hibernian. Irish Life has a large percentage of AIB and the Bank of Ireland. The Hibernian has a large proportion of Hibernian Life and FBD has a large proportion of a brokerage organisation, and so on, and so on. They are the realities in the marketplace.

The point I am making is that to try to turn back that tide and say that you cannot take a slice of this company or that company would lead us into absolutely horrific difficulties. There is a separate issue here too. For example, the Bank of Ireland owning Lifetime is not quite the same as a bank owning an insurance brokerage, although I see the point about an insurance company being involved in a brokerage. The other point I am worried about — brokers have to listen to this voice in the wilderness — is that the UK are experiencing now a difficulty in capitalising brokerages because of the tide of competition from Europe, as it hits us, towards the internal market.

There is heavy competition out there. Brokers are beginning to ask themselves increasingly where is the source of their capitalisation. It will ultimately end up, by and large, perhaps with banks and perhaps — even the unthinkable — with insurance companies. I am not saying that will happen, but it is a trend which is being experienced in the UK. A broker who is thinking ten years ahead must ask himself where will he go for capitalisation if he is to really market his products on an international scale in particular. He will probably have to go to the self-same financial institutions which we are now talking about. That is a quick view down the road which I wanted to put before the Senators.

Senator Fallon asked me about the [913] code of conduct. It is our intention to include a specific requirement under the code of conduct to be made under section 48 in relation to independent and impartial advice, the avoidance of undue placement of business with any particular insurance company and the need to ensure the client's best interests at all times. We would include those very strongly in the code of conduct. In view of what the Senator has said, I will have a special look at making sure that we strengthen that code in the area of the avoidance of undue placement of business.

Section 43 of the Bill applies to tied agency agreements. In the event that an insurer and an insurance broker, by virtue of some common link or financial interest, reach some cosy arrangement about channelling business, such arrangement would be classified, under section 43 of the Bill, as a tied agency agreement with all the restrictions that implies. That does not guarantee avoiding the difficulties the Senators foresee but it gives us some grip on it. It would be a major policy decision to prevent a financial institution, such as an insurance company, buying a share of any company, given the globalisation and the changing nature of financial services.

Looking at what is happening in the UK, it would be taking us totally against that trend. We have often done that in the past where the UK is concerned. The reality about financial marketplaces is that they are bound up inextricably. For us to adopt an entirely different direction from that which is now very strong in the UK, is something we should do very slowly indeed. I have very real practical difficulties in taking that notion on board because it is actually in the marketplace at the moment. It is there. I would have all sorts of legal difficulties in trying to undo what is already there.

Mr. Hogan: Information on Philip Hogan  Zoom on Philip Hogan  I appreciate the Minister's concern. He is doing the best he can. He knows there is an argument there but he has a job to do and we have a job to do in relation to this Bill. As an insurance broker I can assure him that I have no [914] intention of internationalising myself and setting up office in Paris or anything of that nature. I have no intention of buying a bank or getting a share in one either. In fact, the bank has a good share in me at the moment and in may other insurance brokers also and that is the real world we are talking about.

An Cathaoirleach: Information on Tras Honan  Zoom on Tras Honan  Will the Leader of the House indicate what we are doing?

Mr. W. Ryan: Information on William Ryan  Zoom on William Ryan  I propose that we adjourn until 6.30 p.m. We will not come back to the Insurance Bill today.

Mr. S. Brennan: Information on Seamus Brennan  Zoom on Seamus Brennan  Has the amendment been disposed of?

An Cathaoirleach: Information on Tras Honan  Zoom on Tras Honan  No.

Progress reported; Committee to sit again.

Sitting suspended at 5.30 p.m. and resumed at 6.30 p.m.

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