Wednesday, 25 May 1988
Seanad Eireann Debate
Mr. Fallon: This amendment deals with the question of insurance companies and brokers being involved and having a vested interest and the Minister gave us a very long reply to it. It was a very useful exercise because there is concern about that matter in the industry. The fact that it appeared as an amendment to the Bill and that the Minister gave us a very detailed reply was worthwhile because it cleared the air. He explained the global changes that are taking place in the financial services and went out of his way to explain them to us. I am pleased that it appeared as an amendment to the Bill and I am thankful to the Minister for the detailed reply he gave us. I will withdraw the amendment.
Mr. Hogan: I agree with Senator Fallon that it is no harm to have this matter discussed. The Minister failed to grasp the fact that insurers might become involved in insurance brokerages, and in reality they do, which is effectively removing competition from the consumer's point of view since there would be a vested interest on the part of the insurers to ensure that their product would be sold to the consumer through the brokerage  they owned. There has been a very serious development in the past year or two whereby a group of companies have been buying up brokerages and selling one policy to the consumer. This is unfair competition. They have many advantages over the normal insurance broker. The normal wide-ranging policies that can and should be offered to the consumer are not being offered by people who have a vested interest in developing their own product. While I will not cause any problems about the withdrawal of the amendment, I certainly think the Minister should look very carefully at this development which has taken place on a wide scale over the past year or so. This is a development which I do not like and I would not like to see laws being enacted which would copperfasten it.
Mrs. Robinson: It would be helpful if the Minister could clarify whether in the light of the amendment which has been put forward, which is not acceptable, he intends to examine the possibility of bringing in an appropriate amendment on this point because the issue causes concern to a number of us. It is a valid matter of concern. The Minister's reply was a totally negative one on the issue. I think there was an awareness of why there was concern. I would like to know whether, for example, since this Bill was introduced in the Seanad, there may be either as a new section on Report Stage or elsewhere some consideration of the matter.
Minister of State at the Department of Industry and Commerce (Mr. S. Brennan): I have no immediate intention of introducing an amendment to this Bill because I think the issue is broader then just the insurance industry. It really is the issue of the development of the financial services industry and the ownership of it. I would like to say, in response to Senator Hogan, that we are not in any way removing competition. In fact, we are trying to increase the amount of competition in the marketplace. If there are any tied agents in this Bill they will be seen as such. If a brokerage are committed to a  particular company they will be seen for what they are.
The way around it is to make sure that the consumers know the type of animal they are dealing with, that they know who owns it and that they have full information on the kind of company they are dealing with. That is a better road to go. The complexity of the shareholdings today between banks, insurance companies and brokerages is such that you would need an absolute army to police any type of segregation between those areas. I am not sure whether these famous Chinese walls that the financial service industry in the UK have adopted can work here. Certainly there is a need for them in many many areas including this area.
I fully understand the spirit of this amendment which is to ensure that insurance companies do not buy up brokerages and channel all the business back to themselves. That is a very understandable position. If we move in that direction it is totally contrary to the tide and the tide is the levelling of playing fields, a deregulation of the financial services industry and an approach that says you inform the consumer that the people they are dealing with may be tied up with somebody else. Increasingly that is the way the tide is. It is a market reality and I doubt very much that legislation will turn that tide back since it is so strong today.
I have sympathy with the principle here but I think it is against the tide and does not grasp market reality. In reality at the moment many such companies have investments in brokerages. It is important that the consumers should know the status and ownership of the people they are dealing with. Then they can decide whether they are getting a fair deal. That applies right across the board in banking, building societies and insurance companies. Anybody who attempts to draw a very crisp line between all those financial institutions in such a way that there is no conflict of interest is setting out on a mammoth task because the complexity of the shareholdings between all those companies are so obvious that we would  be wasting our time trying to do it. It is better to accept market reality here and deregulate in this way.
Mr. Hogan: I do not accept in the development of the financial services market that it is in the best interest of the consumer. I do not accept that banks and building societies who merge, if insurance companies are being bought up by those conglomerates, are in the best interests of the consumer. That is the direction in which the financial services sector is heading. You will have interlinking of various aspects of the financial services sector built into banking, building society activity and insurance business. If the Minister wants to face up to the situation he will have to accept that, if a consumer goes into a building society or a bank for a loan or an overdraft and the question of insurance arises, 99 per cent of the time the consumer will be forced to be satisfied that the bank manager or the building society manager is offering good advice and the best product that is available and the bona fides of that manager will be accepted by the consumer. That is unfair competition and that is a development which the Minister is supporting and which I do not agree with. He will have to accept that keeping the business of the banks, building societies and insurance companies separate from each other will be more in the interest of the consumer than ending up with a number of large companies owning all building societies, insurance companies and banks. There will be no competition and the consumer will be the unfortunate person who will not have the discretion, the wherewithal and the knowlege to decide rationally what is the best policy for him or her.
“(1) Whenever the Minister considers it necessary in order to satisfy himself whether an undertaking is complying, or has the ability to continue to comply, with its obligations under the Insurance Acts, the Minister may direct an investigation of the business of the undertaking or of any aspect of such business.”.
Mr. S. Brennan: The purpose of these amendments is to make legally more precise the scope and the thrust of any ministerial investigations of insurance undertakings under this section. The proposed amendments would make it clear that any investigations may be directed by the Minister where he considers it necessary in order to satisfy himself that an insurance undertaking is complying with its obligations under the Insurance Acts, principally those in relation to its financial position and its solvency. The wording in the published Bill was considered to be legally imprecise and could have been interpreted as allowing a Minister to interfere in the normal day-to-day commercial operations of insurance companies which, of course, is not the intention. Because it is not the intention the proposed amendments will make the position much clearer in this respect and confine the Minister to having a financial basis for directing any such investigations which is sensible.
Mr. Hogan: I welcome this amendment, because the Bill as it is written, gives powers of investigation to the Minister into the commercial operation of an insurance company which would be far wider than the investigations the Minister could make of any other financial institution such as a bank. The only reason a Minister would want any investigation into an insurance company would be if he had a doubt about the solvency of that company. It is important in the light of developments that have taken place in  this country over the past number of years, particularly with the PMPA and the Insurance Corporation of Ireland debacles, that the Minister should have powers of investigation if he doubts the solvency of some company power to investigate those doubts is the only power the Minister should have in this regard. I will not move my amendment No. 27 in view of the fact that the Minister meets my requirements in amendment No. 26.
Mrs. Robinson: I welcome this amendment as being a better and tighter formulation of the power which the Minister is taking. It is a very important power and a far-reaching one to require an investigation to take place and then as a consequence it means that the Minister can direct that the undertaking should furnish returns and other information. I have concerns about the manner of the investigation but they are probably better made on the section itself.
With regard to the amendment, perhaps the Minister would indicate if he is in a position to say how it is likely that the process of coming to the initial consideration that is necessary to start an investigation will take place. Will there be an interaction with the company at that stage? Will there be an exchange with the company where the Minister will say: “Unless you can satisfy me as to point X or Y I may have to start a formal investigation?” Will the Minister be empowered to satisfy himself, as the amendment now says, that he considers it necessary, in order to satisfy himself whether an undertaking is complying, or has the ability to continue to comply, with its obligations under the Insurance Acts to direct an investigation?
Will there be an opportunity for a company to comply with what the Minister wants and therefore forestall the necessity for an investigation? Will there be a natural justice element before the investigation commences? Will there be an opportunity for the company to know they are at risk, that there may be a formal investigation under this section with all that is empowered and an opportunity to satisfy the Minister, provide the  information and the evidence that are necessary and, therefore, prevent an investigation taking place?
Mr. Fallon: I would like to support this amendment. My view on the original Bill was that this section conferred on the Minister what I thought were extremely wide powers of investigation into the normal commercial operations of an insurance company any time that he considered it necessary in the public interest and in the interest of policyholders. I felt they exceeded the powers normally granted to other commercial groupings and, for that reason, the amendment is better and it is drafted in such a way as to deal with liabilities and comply with solvency requirements of insurance companies. It is preferable to what is already in the Bill.
Mr. Mulroy: I would also like to support this amendment. The Minister has a responsibility to ensure that companies have adequate reserves to meet claims which have occurred because, in cases like this, it may take several years to settle claims. I am pleased that the Minister has strengthened this section and that his powers are strengthened. It is vital that this amendment is written in such a way as to allow the Minister to have effective control over the running of insurance companies. Any strengthening of this section is to be welcomed.
Mr. S. Brennan: I want to assure Senator Robinson that what we are doing here is putting into statute what is at present administrative practice. One of the reasons it is necessary to do that is that in the case of one of the famous administration sagas some years ago there was a feeling that there was not sufficient statutory backing for a lot of the information that was being sought at the time. In one of those cases the Government of the day had to go so far as to actually threaten revocation without having this initial procedure. It is much more sensible to put it into legislation so that that kind of lack of co-operation  which emerged in one celebrated case in the past does not happen again.
We are putting in place what is administratively happening. There will be and there is initial contact with the company. After that initial contact there is full analysis of the information. If that information is very complex we may decide to call in consultants to look at it. The company will have a full opportunity to make their case well in advance of a decision being taken to make that investigation. That is the way it works in practice. With the exception of one major case in the past, we never had any difficulty with that. I would like to assure the Senator that natural justice would pertain in this whole area as it does at present.
Mr. S. Brennan: Subsection (4) allows the Minister to direct an insurer to cease any practices detrimental to the interests of the policyholders which the investigation reveals. This can have wide application and it is not possible to isolate in advance what such prohibitive practices might be. It is being dropped now because we are directing the reason for the investigation of solvency requirement and financial requirement as opposed to detrimental practices. In other words, we have narrowed the Minister's power to intervene only in cases where there is a solvency or financial requirement. “Practices detrimental” is probably too wide so we have narrowed the Minister's power to intervene. The phrase “practices detrimental” is too wide and could  open up all sorts of areas which the Minister would not intend to be involved in at all.
Mr. Hogan: The purpose of the Minister in seeking these powers of investigation is to establish the solvency or otherwise of a company. I am concerned about the past experience of insurance companies in this country not co-operating with Ministers or Departments in meeting various financial criteria or giving information to Ministers about their solvency or otherwise. The Minister has rightfully said he hoped this will not happen again and he has extra powers now which he can use to get information.
A number of developments are taking place at the moment in the insurance business where there is enormous under-provision in relation to claims in insurance companies. Media reports, annual reports and outturns from various insurance companies would suggest that there is wholesale under-provision in relation to claims taking place in some insurance companies at the moment. The Minister launched a very attractive insurance product in the motor area some time ago. I regret to say that the company involved in underwriting that business had serious under-provision of claims during 1986.
 I wonder if it is wise for the State and the Minister of State to get involved in the promotion of a product that might have under-provision of claims experience that might come to light later on. The Minister is aware that there has been a wholesale advertising campaign launched to reduce motor insurance. Certainly his efforts are to be applauded in this case. I would like to remind him that motor insurance premiums will not be reduced by companies who seek to give attractive quotations to policyholders by using resources that are needed at the end of the day to provide extra finance to the company to meet the claims experience that might accrue from having extra motor insurance on their books. If an insurance company overload their portfolio in one aspect of insurance, for example, motor insurance, they are exposing themselves financially in that area to an enormous loss if a larger than anticipated claims experience occurs.
I would like to hear the Minister's comments on the section. He will now have powers of investigation into companies where he doubts their solvency. Will he have the same discretion to investigate a company in which there is a doubtful provision of finance made available in the company in order to meet more than expected claims experience, whether it is motor, public liability or employers liability claims.
Mr. Fallon: It is generally known within the industry that a particular magazine sounded warning bells in regard to one company. That magazine was published about two months ago. I would like to ask a question about the Blue Book. Returns for the Blue Book seem to come out very late indeed and the Minister's Department have received the 1985 returns only this year. Is that correct? It seems to me that if the Minister's Department could have the Blue Book available earlier it would obviously be a big help generally to the industry.
An Cathaoirleach: I have to protect the Chair. There is a long-standing rule here that a particular company should not be  named. It has not been named but just in a case somebody might name it before I have made a ruling.
Mr. Hussey: The point raised by Senator Hogan and by Senator Fallon is very important because, while we all want to have cheap insurance — that is what everybody is after at present — there should be provision made for claims and any company who are under-providing for claims are a risk to the whole industry. We all know what happened before when certain companies collapsed. It created serious problems in the insurance world. This is something at which the Minister should have a very close look. If a company are providing services that are cheaper and appeal to the clients and to the general public to be better value than another company, something must be wrong. All companies cannot provide the same kind of service. I am sure that all insurance companies involved in the motor insurance business at present are trying to cut their costs and trying to provide insurance as cheaply as they possibly can. It is very important that they should have sufficient funds to meet any claims made on them and any company who are not doing that are not acting in the best interests of the insuring public.
Mr. S. Brennan: First of all, regarding Senator Hogan's points, I should say formally that all the companies for which we have responsibility are solvent on the basis of their latest accounts. I should say that clearly. In an industry in which rumours and loose talk can actually accelerate any company's potential difficulties, I would greatly caution against any suggestions or innuendoes about any particular company. For that reason I want to again say that all the companies under my jurisdiction are solvent on the  basis of their latest accounts which have been presented to us. The 1987 accounts of all companies are being analysed fully by my Department and, if any investigations are necessary as a result, they will be carried out. We are in touch with the companies on a regular basis. I suppose you can say that, not only the public and the companies, but the Government also learned their lesson from events of years past.
There is a tight regime now, whereby we send consultants into companies on a regular basis to get advice on their financial standing in the community. I can reassure Senator Hogan on that point because it is important that no word should leave this House which would in any way suggest that there are companies who are not meeting their solvency requirements. They most certainly are.
The 1986 Blue Book has been published. In regard to the 1987 Blue Book, the accounts are due in by 30 June from all the companies. I would like to receive them sooner but realistically the year ends in December and, if we have them by the end of June, that is probably reasonable. Between June and October-November perhaps we can try to get the Blue Book published. I would like to get it out sooner and we will make every effort and keep all the pressure on the companies to ensure that we get the information in time to publish that book a little bit sooner.
Mr. Hogan: I think Senator Robinson put her finger on it when she said that so far as the Minister is aware the companies are solvent. Certainly it would not be my intention to have rumours circulating from this House that there are companies that are not solvent. I did not intend that and would not intend that. I would be very concerned about insurance company promotions in which there would be an over-reliance on one sector of the market which might put a company's solvency in danger in the future. In the insurance business, particular insurance companies get into a sector of the market at a particular time and flood the market by  under-cutting in a particular sector. They gather a significant proportion of new policyholders into the company and then increase the premiums. The unfortunate consumers are left with the possibility of having to stay with that company because they are not able to get cover elsewhere, or else to go to the bother of moving their business to another company earlier than they anticipated. The extra benefits promised a year or two earlier would not have materialised. At the end of the day the insurance company would have the worst of both worlds. They would have an enormous pull out of policyholders in that particular year, together with a higher than average claims experience due to an over-reliance on liability insurance or motor insurance.
Those two scissors movements would certainly put any company into a vulnerable situation and create a doubt about its solvency margin. I am alerting the Minister to the fact that I do not want to see any insurance company promotions taking place in which a quick buck is made for short term gain at the expense of other insurance companies and which may not be in the medium term interest of the consumer and of the policyholder.
Mr. S. Brennan: I have no difficulty at all with those aspirations. The insurance industry is no different from any other business. It has to compete. I lent my own office to supporting a number of promotions recently which I felt were in the consumers' interests because insurance companies, like other companies, have to compete. They cannot look to the State overly to protect them. What we can do under EC Regulations and other regulatory items is that, if we see insurance companies getting involved in areas which might affect their solvency, we intervene and tell them so. We always have had the fullest co-operation from the companies when that is brought to their attention.
I would not be in the business of saying to insurance companies: “You must not be innovative; you must not bring forward new products; you must not go for  market share, because to do that would damage your solvency and anyway under-cutting is not a nice thing to be doing because, if you under-cut, you eventually get yourself into trouble.” The difficulty with that approach is: who decides what is under-cutting? The other side of under-cutting is featherbedding, where rates are much too high. At what stage is a company accused of under-cutting and at what stage is it accused of being competitive and of bringing forward a product that the market clearly wants?
It is unfortunate that in many businesses when somebody cuts out the middle man, or takes a new approach, or brings in technology, people become unemployed. In the products to which we are referring, for example, I know people may get motor insurance directly by picking up a telephone, whereas perhaps in the past they may have gone to a broker. Again that is just a marketing innovation. It is a developmental stage. The other point is that, if I was not doing what I am doing with the industry just now, in the debate today people would be shouting that I was supporting a cartel and allowing insurance companies to fix rates and that they would decide that anybody who broke ranks from the club was under-cutting.
We are not here to protect the club or to protect the cartel. We are here to find the fine balance between giving the public a good deal on their insurance and making sure that it is competitive and does not get the companies into difficulties. It would be very foolish of the shareholders of any insurance company to take a short route to gain market share and then go bust afterwards. That is the dilemma every owner of a business faces. Anyone in business could get business if they halved their prices. They would end up without a business very shortly. That is an option open to every business including the banks. They do not do that because there is a natural point at which the shareholders and the management will shout stop.
I thought about that and decided to support these promotions on the basis that they are stirring the market and  giving options to the consumer. The industry will have to deal with that turbulence as best they can.
Mrs. Robinson: I want to raise a different point on this section dealing with investigations. As I already mentioned, it is an important power to give the Minister. The Minister has referred to the fact that it puts into statutory form or practice an administrative practice that exists at the moment but, once the Minister has directed an investigation under subsection (1), he has power to require undertakings to furnish him with various types of information under subsection (2). What concerns me is that under subsection (5) as it is now, although it will presumably become subsection (4) because he has knocked out subsection (4), if an undertaking fails to comply, the Minister can either suspend or revoke the authorisation of the business. That is a very important power and it is obviously a necessary power to give the investigation teeth. There is no time limit anywhere in the subsection as to when an undertaking must furnish the documentation.
The point I want to make is in relation to the mechanics. If we look at the next section where the Minister has power to intervene in cases of doubtful solvency, he may require certain things to be done but it is within a specified period, whereas in this section, although there is an important investigation and a very definite power to revoke or suspend the authorisation of the business to carry on, there is no period specified. I would have worries that the Minister might find it difficult to exercise that power unless there is a specified period, some formulation that the undertaking should furnish the return, or documentation, or information to him within a specified period. It could be said that it would be implied, but this is what legal arguments are made of. If it is not written in and the Minister has the power, which he clearly has under the present subsection (5), to determine that there has been a failure to comply, if there is going to be a failure to comply, with a consequence of either suspension or revocation of the authorisation, the  undertaking should have a very clear statutory understanding of what is to be complied with. It is complying within a specified time and the Minister, therefore, in the subsection should have power to require that it be complied with within a specified time.
Mr. S. Brennan: I have no obvious major argument against writing something like that in, if it is felt to be necessary. The reason we did not feel it was necessary was that we acted on a presumption that in law Ministers are not permitted to act unreasonably in regard to the period of time required. I was also conscious of section 50 in the circumstances where a Minister does revoke a licence and where there is an appeal procedure to the courts that these may be heard in camera. Any unreasonableness would be thrashed out there in that regard. I do not feel strongly about it. If the Senator feels it would tidy it up, we will certainly have no difficulty in putting in some reference to “within a specified date”. If she feels it is necessary we will certainly look at it.
Mrs. Robinson: It is purely the mechanics. There is no doubt that the power to direct an investigation is an important power. Directing an undertaking to furnish documents, unless there is a statutory requirement that it be done within a specified time, makes it harder for the Minister to say that there has been a failure. I am using the term “within a specified time” because that is what is used in the next section in relation to steps to be taken where the Minister is concerned about the solvency of a company. Equally a company should be aware that it is the failure to make the return within the specified time in the subsection that will be the ground on which the Minister will form the statutory opinion that there has been a failure to comply with the section. I thought it would be useful to write it in.
Mr. S. Brennan: The other difficulty may have been the specified date the  Minister may lay down. That in itself may cause difficulties because that may not be a reasonable date depending on the complexity of the information sought and so on. It was probably left open for the right reason and not the wrong reason so, depending on case by case, the time would be very obvious. For example, you might have to wait for the end of annual accounts, or the end of a consultancy assignment, or whatever. I can see both arguments. I am prepared to put in the phrase “within a specified date” if Senator Robinson feels it is necessary and obviously she does. I think we will do that.
Mrs. Robinson: As I envisage it, the specified date would not tie the Minister in any particular case. It would be the particular date specified for the particular company in the particular circumstances. As I read subsection (2) at the moment, how does the Minister conclude that there is failure? The Minister in a letter may say: “Send me before the X of October” but the subsection does not say that the undertaking must do it before a specified date. It is not actually built into the subsection and so a company could raise the argument that it was not clear that failure to do it before that date was the failure in question. It simply clarifies an issue where the Minister is taking real statutory power and, therefore, it is a power that may be resisted and it is in ease of ensuring that the power is properly exercised to write it in.
Mr. S. Brennan: This amendment proposes in paragraph (v) to delete the phrase “domestic liabilities” and to replace it with this other phrase. The reason for the change is that the former wording in the published Bill is not precise enough in its meaning and is open to possible misinterpretation. The parliamentary draftsman has advised me that this is to be avoided and the amendment is put forward for this reason. So it is a somewhat technical amendment to improve the wording in line 20.
Mrs. Robinson: Are we still with the Minister's amendment? Yes. Without too much difficulty I can see why. I have no difficulty in accepting that the formulation proposed both in the Minister's amendment and in the identical amendment from Senator Hogan is better. It is much better to put “liabilities in respect of business carried on in the State” but, on reflection, I think particularly now that we are moving into this very sophisticated area of financial services, it would be no harm to have some kind of a definition, even a reasonable definition, of what the Minister would envisage to be in this context, “liabilities in respect of business carried on in the State”. What ties it into the State in this day and age when so much can be transacted in a nonphysical way?
Mr. S. Brennan: “Liabilities in respect of business carried on in the State.” The business carried on by the company in the State is the business referred to. I do not know if we could be more precise than that.
Mr. S. Brennan: Section 16 of the Bill deals with the prior notice and display of policy terms and premium rates and is drafted to cover both established insurers operating in the Irish market at present and also services insurers who will be operating here in the future. The amendments have been drafted with a view to ensuring that the Minister may require similar information from services insurers as from established insurers in the Irish market while, at the same time, having regard to any provisions of future EC Council Directives which may set down specific regimes or limitations applying in such service industries. The amendments are, therefore, declaratory in their meaning in that they make clear that the provisions of the section will apply subject to the provisions of any Council Directive.
Mr. Hogan: On this section, is the Minister seeking to have powers whereby insurance companies could be compelled  to give prior notice and display in relation to policy terms and premium rates and general information? Has the Minister powers under this section to alter those conditions at any time? Perhaps the Minister could explain to the House what type of information he would want displayed. Does the Minister have any regulations or guidelines at his disposal at the moment which would explain exactly what he means by the information required to be put on display?
Then it is implied that the Minister will not do so if that is contrary to community law. Is that the thrust of the amendment? The Minister is not writing it into the Bill but is saying that it is understood that the Minister will only authorise?
Mrs. Robinson: The question of whether the Minister is at present authorised or will in the future be authorised may not depend on a Council Directive. It may depend on principles of Community law, without even a Council Directive, depending on how the Court of Justice is ruling and how the insurance case is interpreted. It is better not to put “Council Directive” because it might be the Treaty as it impinges on the insurance area, as opposed to a Council Directive. I want to be clear that the Minister is simply making it clear that the only basis on which he will authorise is if it is compatible with Community law and if it is not compatible with community law there will not be authorisation.
Mr. Fallon: If the Minister finds, for example, that the re-insurance is inadequate I presume he can check out that aspect. I am sure the Minister has people within his Department who are sufficiently knowledgeable to be able to check on the re-insurance aspect of particular cases. Perhaps he will comment on that because re-insurance today, as it has always been, is of very great importance.
Mr. S. Brennan: First, I will deal with Senator Hogan's point about what type of details we might require. We would require details to reassure us that the practices the company were carrying on in regard to rates and so on were reasonable. The State has power to direct companies to increase rates, if it feels they are too low or are in any way dangerous. The State can intervene and direct an increase in rates. We would seek details of policy terms and conditions, perhaps for specified insurance contracts if necessary, before any such contracts are issued. Pre-notification of premium rates would probably not apply to contracts where no preset or scheduled rates apply. We would seek information which would reassure us that the practices were reasonable.
Mr. Fallon: The reality of life today, certainly in the motor insurance field, is that you get quotations. Some companies rates for normal mature motorists can be as much as £100 or £150 cheaper. Some companies will charge double the premium of other companies. How does the Minister decide which of the premiums is the more appropriate? Are there staff within the Department who are able to say that a certain premium seems very low and must be investigated and, if need be, they will ask for an increased premium or, vice versa, if the premium is too high can they say that it must be reduced?
Mr. S. Brennan: Our only powers in this regard are where we deem that the rates are too low. The Senator asked how do we decide that. There is no simple  answer to that. Obviously it is a process. It is a free market. I referred in my earlier comments to encouraging competitive forces up to the line where they do not in any way interfere with solvency. That is a very complex, difficult and sensitive area. We have powers to intervene if we feel that rates are loo low, so low that they will affect solvency.
I have to try to find a very clear balance between that and interfering with the free market and with competitive forces because, if we start to interfere too much with competitive forces, even in a sensitive industry like this, the consumer loses out at the end of the day and the industry becomes very clubbish and becomes a cartel all over again. We have to make sure that that is not the road we take. We have to maintain solvency consistent with consumer service. That is an everyday challenge when you are dealing with insurance companies.
Mrs. Robinson: This point really relates back to a point which was raised on the preceding section, section 15. We are talking here about either an undertaking authorised in the State or — and it is the second category I wanted to focus on — an insurance undertaking which, while not authorised in the State, issues cover from abroad for a risk arising in  the State and is legally entitled to do so. Would that be a liability in respect of business written in Ireland?
Mr. S. Brennan: That would clearly be the intention. It is written “issues cover from abroad for a risk arising in the State”. So the risk has to arise in the State. What we are trying to catch is if that cover is written from abroad. The wording in line 18 is: “issues cover from abroad for a risk arising in the State”. The risk would clearly have to arise here in this State.
Acting Chairman: Amendments Nos. 34 and 35 are related and may be discussed together.
Mr. Hogan: I move amendment No. 34:
In page 11, lines 44 to 47, to delete subsection (3).
I put down this amendment for purely technical reasons. Subsection (3) is similar to the powers which have already been granted under section 15. The Minister is trying to investigate a company or the people who are promoting the establishment of a company in this State and to ensure that the people who are establishing this insurer are qualified to carry out the task. There are similar powers in section 15 as are in section 17 (3). Under section 17 (3) the Minister is individualising it down to a number of key people within the insurance company. Rather than doing that, I would prefer to see the person referred to as “the insurer” rather than talking about the director, chief executive, or authorised agent on behalf of the insurer. It should be wider than that. The insurer should be subject to the scrutiny of the powers that the Minister will confer on himself for the purpose of establishing an insurer in the State or establishing information about insolvency.
Mr. S. Brennan: It is a new section. It empowers the Minister to seek details from insurers of the experience and qualifications of existing directors and senior management and, in the case of branches of foreign insurers, of their authorised agents in this State. It is not the intention that these powers should be used in any busybody fashion or that details of the incumbents of all managerial positions down to office managers will be canvassed. The powers will be exercised judically where necessary or desirable in order for the Minister to satisfy himself as to the capacity of those directing the insurers' business.
That is the overall intention of the section. The various subsections seek to pin that down. It is a reasonable requirement. If we are to keep a very close eye on the solvency of insurance companies, it is very important. These are run by people and it is important that the people who are running them have the necessary qualifications and expertise to do so. This power is available to the UK Government and to other States.
Mr. Hogan: In view of the fact that it is available in the UK — I was not familiar with the position in the UK and I am glad that the Minister referred to it — I will withdraw my amendment.
Amendment, by leave, withdrawn.
Government amendment No. 35:
In page 12, between lines 7 and 8, to insert a new subsection as follows:
“(5) In the case of an undertaking whose head office is not situated in the State this section shall, as respects directors and holders of managerial posts, apply only to persons carrying on functions of the undertaking in the State.”.
Amendment agreed to.
Section 17, as amended, agreed to.
 SECTION 18.
Government amendment No. 36:
In page 12, between lines 27 and 28, to insert a new subsection as follows:
“(2) Where the Minister proposes to suspend or revoke an authorisation under subsection (1), the Minister shall notify the undertaking concerned in writing of such proposed suspension or revocation.”.
Mr. S. Brennan: Section 18 sets down procedures for the revocation of authorisation by the Minister where no business is being done by an insurance undertaking in the State. The intention behind the provision is to limit the scope for the holding of paper or phantom authorisations by insurers. However, as the ministerial action will revoke or suspend an authorisation to carry on business in Ireland it has been decided, on reflection, having regard to the principles of natural justice which should apply, to provide that where the Minister proposes to suspend or revoke an authorisation where no business is effectively being done, he shall notify the insurance undertaking concerned in writing of his intention. The proposed amendment, therefore, seeks to meet this requirement.
Mr. Hogan: I am glad the Minister is heading in this direction with this amendment which is a good one. To be fair to insurance companies we would have an early warning system built into this. It would be unfair on insurance companies to indicate to them very quickly in a hamfisted fashion that you are going to suspend their authorisation or revoke it if they are not writing business in a particular sector of the market, at a particular time, because we all know the difficulties insurance companies are facing in relation to claims experienced over the past couple of years. Many companies are not quoting for liability risks that would put them in the position of meeting large claims in the future.
I am extremely concerned, as an  insurance intermediary, that in a number of high risk businesses like engineering and building contracting it is exceedingly difficult to get an adequate number of insurance companies to quote for that type of business with the result that competition is removed. Only one or two companies in the country are prepared to quote for that type of business. Perhaps things will be different when we approach 1992, with the opening up of the internal market and we will have more competition from outside insurance companies. Nevertheless, we have to recognise that a risk insurance companies have here is that there is scope for enormous claims if they do not judiciously watch the balance they achieve in relation to the risks they take on in a particular insurance company. I am glad the Minister is taking powers to ensure that companies quote for insurances with which we have had a difficulty from the consumer point of view up to now, but the Minister would want to use the big stick approach rather leniently because there are difficulties in some insurance companies which might lead to financial problems for the insurance company if the Minister over-extends that power.
Mrs. Robinson: This amendment proposes to introduce a subsection which requires the Minister to notify the undertaking of a proposed suspension or revocation where it is to be done under section 18, that is, where it is a revocation of authorisation where no business is being done. I am speaking on the pure mechanics of it. This is the third section, in fairly close proximity, where the Minister has power to suspend or revoke, and each of them is different in ways that I cannot quite understand. Perhaps there are good reasons, but I cannot fully understand the reasons. Under section 14, in relation to an investigation, the Minister may suspend or revoke its authorisation. There is no provision — and maybe there should be — that the Minister may from time to time vary or revoke a direction given under that section. That is contained in section 15 which also allows the power to  suspend an authorisation. That would be in relation to doubtful solvency.
Section 18 (3) links in to section 15 but not to section 14. Again this may be for valid reasons, but I cannot understand the reason. It says: “Subsection (1) shall not apply to cessation or reduction of business or revocation or suspension of authorisations required by direction of the Minister under section 15.” I cannot quite understand whether the Minister's amendment providing a protection for undertakings — because it is saying that the Minister where he proposes to suspend or revoke an authorisation shall notify the undertakings — means but not including those under section 15, or whether it also includes those under section 15. Does it include those under section 14? The point I am trying to make in a complicated way is: is there a standard practice for the Minister when it comes to exercising his powers under sections 14, 15 and 18? If there is not a standard practice, is there a good reason why there would not be a standard procedure both for the Minister in exercising the power and for undertakings in having the power exercised against them?
Mr. Fallon: The section and the amendment give wide powers to the Minister to revoke an authorisation where no business is being underwritten. The Minister has used the phrase from time to time “in making commercial decisions” and so on. In my experience with the insurance industry, from time to time a company reduces its exposure in certain types or classes of insurance business for what they regard as good normal trading practice.
Many years ago when the NEM were very prominent in underwriting the hackney business in Ireland, they must have had 60 per cent to 75 per cent of the business. Suddenly they stopped doing this business because it was not profitable. I can recall being told by people who went on a deputation to London to meet the administration of the NEM and to ask them to continue to trade that they felt they should have a 75 per cent increase. Even if they got the 75 per cent  increase, it would still be a very reduced premium compared to the other rates that were available. Yet they decided not to continue in the hackney business, to pull out of Ireland and that was the end of it. It was a commercial decision and they stopped trading for that class of business. I know it is a class of business within a class of business, but it is a very important business in the motor field. The reason given was that it was a good commercial decision.
I would love to see companies underwrite trade and business as they have been authorised to do but I can understand the attitude of the insurance companies. While I appreciate and accept this amendment I wonder if there could still be a further procedure, perhaps a right of appeal to the courts, if it was found that that was a preferable way of doing it before the revocation would become fully effective. The companies will say that normal commercial practices should prevail, that they have stopped trading for their own good commercial reasons. I do not wish that to be the way, but they will make that point clearly and their point of view, in fairness, should be considered.
Mr. S. Brennan: On Senator Hogan's point, the wording of amendment No. 36 is reasonably clear. It says:
... the Minister shall notify the undertaking concerned in writing of such proposed suspension or revocation.
It does not spell out that they have to be notified of the Minister's intention. The wording is strong enough. It clearly makes it legally necessary for the Minister to write to the company and say he is proposing to suspend or revoke their licence. Presumably, as is the present practice, they will respond to that and the Minister will then decide whether or not to go ahead. That would cover it. It could be laid down in another sentence, if necessary, that the Minister would have to await a response and so on but if we get into that detail, trying to cover unreasonable behaviour, we will have a  massive piece of legislation. It is not necessary. I am presuming that both sides will act reasonably once the proposed suspension is notified.
Senator Robinson made a good point which I will consider. Sections 14, 15 and 18 deal with revoking a licence in some way and perhaps there is a standard notification procedure and appeal procedure for all of these conditions. I will have a closer look at that and see if I can consolidate them or harmonise them in some way. There are specific reasons for each section. I have a specific target on this section which is to clean out the phantom companies who are not doing business, to either get them off the list or get them doing business. That is the target in this amendment. However, we will have a look at pulling that procedure together.
There is a procedure at the moment for revoking licences. Present practice is reasonably well established and the company are fully consulted. The company are in no doubt as to the Minister's intention and they are given every opportunity to respond to the Minister before any final revocation takes place. Any Minister who would behave in any other way would leave himself wide open to all sorts of actions. What we are trying to do is to put present practice into the legislation and not go beyond that.
Mrs. Robinson: I welcome the Minister's indication that those three sections will be looked at, sections 14, 15 and 18. I take his point. They deal with different areas, and different considerations apply, but it is an important power to be able to suspend or revoke an authorisation to do business. Once we start to introduce such a power into a statute we open ourselves to an application for judicial review if natural and constitutional justice is not complied with. There seems to be an unevenness at the moment, perhaps because it is a complex area and the Minister is, quite properly, introducing amendments to flesh out certain sections. I can see a reason why the Minister, on this section is proposing that there should be an amendment requiring the Minister  to notify the undertaking concerned of a proposal for suspension or revocation.
Having said that, the Minister then raised the question as to why is there not also that express provision that the company should know in writing the intention of the Minister to possibly exercise that power under section 14 or section 15. Equally, in relation to section 15 (9), if it is felt necessary by the parliamentary draftsman, as presumably it is, for the Minister to be able to vary or revoke a direction given under this section, surely under section 14, in particular, it would be presumably necessary for the Minister to vary or revoke a direction. If the Minister has, for example, suspended an authorisation for failure to comply with section 14, he must have the power to vary that. Perhaps he has the implied power, but it appears that the parliamentary draftsman feels it necessary to include an express power under section 9.
It is probably necessary to look at the fact that under section 15 there is an enabling power to the Minister to apply to the court. Is the Minister quite satisfied that in exercising the powers under sections 14 and 18 it is not necessary to have the same possibility of applying to the court? We are talking about the power to suspend or revoke authorisation. To suspend is not too bad, but to revoke an authorisation to do business is to deprive somebody of a property right, a right to do business in something and, therefore, it is a very serious power. Is the Minister satisfied that that power is properly grounded in the present section?
I simply respond to the Minister's openness to examining it. It may be, on examination, that the Minister will be satisfied with it. I fully accept that it is really introducing into statute administrative practice, but once we start introducing it into statute, the trouble starts, because then the small print is the basis on which the exercise by the Minister of the powers will be assessed by the courts. That is exactly the basis on which applications for judicial review will be based. It would be better to be sure than to be sorry later.
Mr. S. Brennan: I confirm that we will look at sections 14, 15 and 18 to see if we can in some way standardise that procedure because that certainly is our intention. I would like to remind the Senator that in Statutory Instrument 115/1976, there is power to revoke licences in cases of unsound trading for example. What we are now doing is laying down more specific crimes for which the Minister may revoke licences. It is important when we are doing that to get the procedure which is at present quite satisfactory as nearly as possible into the statute. I am happy that the policy here is correct and the direction is right. I will certainly take on board the Senator's suggestions in the sense of pulling the procedures more closely together.
Amendment agreed to.
Government amendment No. 37:
In page 12, subsection (2), line 29, after “issue” to insert “in the State”.
Mr. S. Brennan: This is a minor amendment designed to tidy up the scope of subsection (2). What we are concerned with here is the carrying on of business by an insurance undertaking in Ireland and it is, therefore, necessary to restrict the definition of the carrying on of insurance business to the issue of policies of insurance in the State. I hope this amendment meets that objective.
Mrs. Robinson: I am sure I am wrong in even rising to this, but it comes back to the point I was making earlier. What happens if it is a policy issued abroad to cover a risk in the State? That is not covered by this definition.
Mr. S. Brennan: The intention is to cover risks and liabilities in the State.
Mrs. Robinson: From what the Minister said on an earlier point, I thought that was the position, but here we have a narrower definition:
(2) For the purpose of this section the carrying on of insurance business  shall be taken to mean the issue of policies of insurance.
We are adding in “the State”, as I understand it. Is that the purpose of the amendment?
Mr. S. Brennan: Yes.
Mrs. Robinson: So, is the issuing of a policy of insurance in the State foreign cover of a risk in the State? It may well be that it is, but I would just like to be clear on that.
Mr. S. Brennan: I want to make sure that it is the risks and liabilities in the State that we catch. The wording here is “shall be taken to mean the issue of policies of insurance in the State.”
Mr. Hogan: Should we change that to “risk”?
Mr. S. Brennan: We can certainly do that. If it makes it cleaner, I will be happy to do that. That is the intention. If we can improve the wording we certainly will do it. It would be best to leave this and look at it on Report Stage. I know what I want to do here. If the wording is ambiguous, I will certainly have a second look at it.
Acting Chairman: Is the Minister withdrawing the amendment?
Mr. S. Brennan: I would prefer if the House did not make that request at the moment. I will come back on Report Stage and see if I can improve the wording because the actual principle of what I want to achieve is quite clear.
Amendment agreed to.
Question proposed: “That section 18, as amended, stand part of the Bill.”
Mr. Hogan: In the section the Minister has certain powers to revoke an authorisation where no business is being  done. I am sure the Minister is aware that there are quite a lot of businesses which are not quoted in Ireland at the moment by insurance companies. There are probably many people who could establish small businesses in this country but who are not able to do so because of failure to get insurance cover at a premium that was not prohibitive. There is difficulty in getting an insurance quotation for certain classes of high risk business. Most Irish businesses do not expose themselves to any risk if they can get away with it.
Perhaps the Minister's Department should have discussions with the Irish Insurance Federation to devise ways in which various high risk occupations can be catered for. I am talking about the courier business, the engineering business and so on where there is scope for small employment initiatives. They are prohibited from doing business because they are not able to get adequate insurance cover and, in some cases, they are not able to get an insurance quotation at all. Will the Minister under this section exert whatever influence he can on the insurance companies to quote, at least, for all categories of businesses where possible?
Mr. S. Brennan: That is the intention behind this. The Senator is quite right and he obviously knows the industry. The intention here is to encourage more business to be written. That is what I want to do and to make sure that there are no phantom authorisations hanging around. Those pieces of paper are very valuable assets and it is important that they are used or withdrawn. I want to stir the market in that way by having this power available.
Question put and agreed to.
Acting Chairman: Amendments Nos. 38 to 40, inclusive, are related and may be discussed together.
Government amendment No. 38:
 In page 12, line 41, to delete “any such” and substitute “an”.
Mr. S. Brennan: Section 19 deals with the acceptance of re-insurance business by insurance companies. Its primary intention is to ensure that insurers do not accept re-insurance business in classes of business where they do not have a track record of underwriting expertise on a direct basis. Direct insurance is where insurers are dealing directly with members of the public, whereas re-insurance accepted business involves the laying off of insurance between different insurance companies. Therefore, it can be a relatively high risk business. However, while we feel that the principle laid down in this section is unobjectionable and prudent from a supervisory point of view, it would, nevertheless, appear to preclude an insurer from accepting ancillary risks of a minor magnitude on certain basket re-insurance treaties, for example. This could happen in relation to a substantial fire treaty with an insignificant element of liability cover attaching. The danger with the provision, as drafted in the published Bill, is that it would cut across the existing commercial practice of insurance companies and also would not be consistent with the permission granted to direct insurers to insure ancillary risks. This was not the intention behind the section. Accordingly, the Government amendment proposes now to alter the section by working in an ancillary risks type provision for certain basket re-insurance acceptances by insurance companies. However, life insurers will be prohibited from taking on any non-life re-insurance business and vice versa as these are completely separate disciplines.
Mr. Hogan: I welcome the Minister's amendment. I raised this matter on Second Stage and I am glad that he has reacted positively in coming in with this amendment. Re-insurance is a valuable way in which companies can get business into the insurance companies in this State and offset some of the risks they take in  some of the insurance business they take on. It spreads the risk of the insurer on an international basis and it generates some overseas business as a result.
In considering the opening up of the insurance market in the light of the internal market in 1992, it would be wrong for the Minister at this point to close the market in this country and to refuse to allow companies in Ireland to re-insure or to deal with other companies and lay off some of the risks abroad. It would be a positive development to include ancillary business abroad through insurers in this country. It would be a positive contribution they could make in phasing the way into the internal market in relation to the insurance business in 1992. I welcome the amendment.
Mrs. Robinson: We are at the moment discussing amendments Nos. 38, 39 and 40. I also welcome the amendment. It is really amendment No. 40 which is introducing a new element. I agree with the submission made by Senator Hogan on that. Now that the Minister is introducing a new subsection it would probably be better if that new subsection became subsection (2), and the present subsection (2) would become subsection (3) so that it covers the proviso, if you like, in the new subsection (3). Subsection (2) should finally be that re-insurance acceptances by an undertaking shall be subject to the provisions of the Insurance Acts. It covers all of them. It is a very small drafting point.
Mr. S. Brennan: I think I should invite Senator Robinson to come and work in the parliamentary draftman's office because she has certainly been very helpful. While I am on my feet, I would like to thank Senator Hogan who very fortunately brought it to our attention on Second Stage. His comments there were very helpful to us in completing this section.
Amendment agreed to.
Government amendment No. 39:
 In page 12, lines 46 and 47, to delete “holding an authorisation”.
Amendment agreed to.
Government amendment No. 40:
In page 12, between lines 47 and 48, to insert a new subsection as follows:
“(3) Nothing in this section shall prevent an undertaking from accepting reinsurance in a class or classes to which its authorisation does not extend, where the business of such class or classes is ancillary to the main reinsurance business being accepted, provided always that—
(a) in the case of an undertaking which holds an authorisation under the Regulations of 1976, the class or classes of business in which reinsurance is being accepted is confined to insurance of a class or classes specified in schedule 1 to the said Regulations, or
(b) in the case of an undertaking which holds an authorisation under the Regulations of 1984, the class or classes of business in which reinsurance is being accepted is confined to assurance of a class or classes specified in schedule 1 to the said Regulations.”.
Amendment agreed to.
Question proposed: “That section 19, as amended, stand part of the Bill.”
Mr. Fallon: Can I assume that specialist re-insurers within the State will be known to the Minister and to the Department and that in the same way as direct insurers produce accounts they will be asked to produce accounts? Can I assure that is the position?
Mr. S. Brennan: That is a technical area. They have to lodge accounts with the Companies Registration Office. We do not supervise the re-insurers here unless they are directly authorised by us.  The re-insurance business is a different business from what we know.
Mr. Fallon: I accept that.
Mr. S. Brennan: As such we do not directly supervise them because they may or may not be dealing directly with the companies here. Re-insurers are not directly supervised in that way because they are specialist companies but their accounts are submitted to the Companies Registration Office in the ordinary way.
Section 19 deals with specialist re-insurers who are established in the State. They deal only with other insurers or re-insurers and are engaged in accepting or re-insuring part or all of the risks which are undertaken by direct insurers. If I were to attempt to introduce local supervision of this business it would be beyond our resources and I do not think it would be effective or necessary, given the supervisory controls which are now exercised in large foreign States like the UK and the USA. However, it is useful to be aware of the specialist re-insurers who are operating here and to require them to publish details of their activities. That is what section 19 (1) (b) seeks to attain.
To the best of our knowledge approximately six specialist re-insurers operate in the State at present and most, if indeed not all, are totally foreign owned. It is not the intention of this section to discourage re-insurers from establishing here. Reliable and reputable insurers are very welcome. However, I would be concerned if unsavoury operators were to come here and section 19 (1) (b) should help to keep this situation from developing. Discussions can be held with existing re-insurers on what form disclosure under this section should take in order to secure transparency without damaging the insurance business. I hope that clarifies the position for the Senator. This is an interesting area because the average person might assume that we directly supervise re-insurers when we actually do not.
Question put and agreed to.
 SECTION 20.
Government amendment No. 41:
In page 12, lines 48 and 49, to delete “to an undertaking”.
Mr. S. Brennan: This is a technical amendment to try to tidy up the introductory wording to section 20 of the Bill which deals with minimum share capital requirements. I want to delete the phrase “to an undertaking”.
Amendment agreed to.
Section 20, as amended, agreed to.
Question proposed: “That section 21 stand part of the Bill.”
Mr. Hogan: Section 21 deals with the power to attach conditions to authorisations. The holder of an authorisation has to give certain undertakings under this section. I want to know what are the undertakings the holder of the authorisation would have to give in relation to this section and if there are any constraints imposed by current EC Directives.
Mr. S. Brennan: This is a new section and I think it is reasonably clear. The undertakings required from insurers could refer, for example, to the level and type of business to be written. That is one response to the Senator's question. They could also refer to the way the business is to be conducted, for example, whether the intermediaries are specialists of certain sorts; the expertise of the staff to be used in the business; requirements as to participation in certain market bodies such as the third party motor declined cases committee and so on. That is the type of undertaking we would be seeking.
Mrs. Robinson: The power which the Minister has under section 21 is comparable to the power under sections 14, 15 and 18 which we discussed earlier. If the Minister is going to look at those  sections it would be appropriate for him to look at section 21 also. It seems that section 21 is drafted in very broad terms. Government amendment or any other amendment has been put down to this section which gives the Minister power at the time of issuing the authorisation or at any other time — and, therefore, I presume this could be when the Minister would be exercising his powers under section 14, 15 or 18 — to seek undertakings and the holder must furnish information to the Minister so that he can verify it.
The section says that, if the Minister is not satisfied that the holder is complying with the undertakings given, he may suspend or revoke the authorisation. That is a very important power and I think it would be better if the section contained a notice of the Minister's intention to exercise the power so that the company would have an opportunity to know they are at risk of being suspended or that their authorisation may be revoked under this subsection. This is another section that should be looked at in that context.
Mr. S. Brennan: Perhaps this is not as clear in relation to this section as it was in relation to the previous sections but we will see if there is any conflict between them. We will apply the same kind of thought to all of them to see if we can standardise the procedure. The general commitment I can give the Senator in relation to all of these sections is that we will see if we can standardise this revocation procedure generally.
When a company get an authorisation they give certain undertakings at the time of issue. They know the undertakings given at that time and know what they are letting themselves in for. If the holder of an authorisation is unable to verify to the Minister's satisfaction that he is complying with the undertakings, it is pretty reasonable that the Minister should have power to say: “You have not lived up to the undertakings which you gave freely at the time you got the licence and, therefore, the original agreement to give the licence no longer exists.”
I understand the Senator's point that  maybe this is one sided and that the Minister may suddenly decide he is not satisfied with this power, but that runs through all of the legislation on insurance. At the end of the day the Minister has to be satisfied that the companies are behaving responsibly in maintaining their solvency ratios and he has to have power to act in a wide range of areas. We will look at it from a general point of view but I think the import of the section is clear and desirable.
Mrs. Robinson: Taking the response of the Minister, obviously it is a section that it is going to be looked at. The Minister's powers are not just powers which require undertakings at the time of issue of the authorisation. They are powers that can operate at any time. The section states “...at the time of the issue of an authorisation or at any other time” so they can operate at any stage. If anything, it is a less defined section than the other sections. The other sections address specific issues but this is a more general one and, if anything, it is more necessary that there be precise safeguards written into it because the powers are stated in very broad terms. The Minister may consider at any stage that it is expedient in the public interest and the interest of policyholders to require the holder to give undertakings. There is good reason why that might be so, but there is an obligation to furnish to the Minister returns and documentation and such other information as he may require to verify that the undertakings are being complied with.
Subsection (3) is very difficult to get a precise hold on because it states “... the holder of an authorisation is unable to verify to the Minister's satisfaction that he is complying with the undertakings ...” I think the person should be on notice that he may be at risk of suspension; in other words, the same considerations should apply to a power of this kind simply because at the end of the day the Minister is retaining the statutory power to suspend or revoke the authorisation and can trigger off this requirement of an undertaking at any stage. This seems to  be very close to the powers exercised under sections 14, 15 and 18 but they are more general, less specific and, therefore, more in need of qualification.
Mr. S. Brennan: We will have a look at it. The intention is not to permit a Minister to harass a company in any way. Normally the undertakings would be given at the time of issue of the authorisation. If a Minister was acting unreasonably he could suddenly decide he would attach fresh conditions and if those conditions were not being met he could then proceed to revoke the licence. It would be extremely unreasonable behaviour on the part of any Minister to do it in that kind of precipitate way. I will see if I can ensure that that element of it is taken into account, without over-diluting the Minister's power to make sure that, if an undertaking is going off the rails in any way, he has power to seek undertakings from it. Maybe we should say “undertakings in specific areas” or something like that. We will take a look at that.
Question put and agreed to.
An Cathaoirleach: Amendments Nos. 42 and 43 are related and may be discussed together.
Government amendment No. 42:
In page 13, line 45, delete “£500” and substitute “£1,000”.
Mr. S. Brennan: These amendments propose to increase the limits in section 22 (3) (b) to £1,000. I am proposing in line 45 to delete “£500” and insert “£1,000” and in line 47 to delete “£600” and insert “£1,000”. The increased amounts are being put forward to maintain parity with the equivalent friendly society regulations which have been drafted and approved by the Oireachtas. It is necessary to maintain limits on the amount of insurance for which children can be covered so as to prevent any abuse  of insurance on children and to minimise the potential risk, however slight, to children from unscrupulous guardians. Obviously the existing amounts of £20 and £30 are totally out of date in modern times and their practical impact is to make it extremely unattractive for insurers to issue such policies to parents who might genuinely wish to effect full family life cover. The amendments proposed will remedy the situation.
Amendment agreed to.
Government amendment No. 43:
In page 13, line 47 to delete “£600” and substitute “£1,000”.
Amendment agreed to.
Question proposed: “That section 22, as amended, stand part of the Bill.”
Mr. Fallon: If the Minister wanted advice on industrial branch assurance business I know well where he would travel to. However, having made that point it is right that we should update industrial branch assurance business. We are living in changed times. The economic and social life of our country is different from that of 30 to 40 years ago when industrial branch business was booming. The penny policy was famous for the burials of many Irish people. Many Irish people were buried on the proceeds of the penny policy and we should not forget those days. I pay tribute to the men who cycled the highways and byways of Ireland collecting the pounds and the pennies.
It is right that we should update the legislation in relation to industrial branch assurance. The changes the Minister referred to are permissive rather than specifically mandatory and the insurers concerned may amalgamate their funds or revise the collection dates as they see fit. All industrial branch assurances companies will go for what the Minister is suggesting. I am sure they requested it  because weekly collections are not economic anymore. I congratulate the Minister for updating industrial branch assurance business and for giving it a new lease of life. It was the very rock upon which life assurance was built and the Minister is right not to ignore it. This will mean a new lease of life for industrial assurance business.
Question put and agreed to.
Sections 23 and 24 agreed to.
Question proposed: “That section 25 stand part of the Bill.”
Mr. Hogan: In relation to the development of the financial services sector, which is the Minister's hobby horse for the day, may I ask him what is the reason for amending the Friently Societies Act, 1896? Why is it necessary to do it under this section and what extra developments in the financial services sector is the Minister encompassing under this new section?
Mr. S. Brennan: Sections 25 and 26 are technical sections but I hope the intention of what I am doing is clear. I am trying to close off a possible loophole whereby, under present legislation, a friendly society could be formed to conduct commercial insurance business. Someone could form a friendly society to do insurance business without being supervised by the Insurance Act and this would mean that the insurance activities permitted to be carried on by friendly societies and, under section 26, by trade unions would be strictly mutual self-help activities, the sort of activities one associates with the reason for the existence for these organisations in any case. I am trying to make sure that nobody uses this self-help type of legislation, albeit 1896, and thereafter, to get around insurance regulations and supervisory legislation.
Mrs. Robinson: We seem to be discussing sections 25 and 26 and this suits  the point I want to make. These two sections which the Minister has rightly described as being technical — and, in fact, they are extremely technical in the way they are drafted — raise an issue that was raised at the beginning of consideration of this Bill which is that it is not satisfactory that we are dealing with both insurance legislation of the Oireachtas and important statutory instruments implementing Council Directives. Section 25 amends the Friendly Societies Act, 1896, by reference to the Council Directive and authorisation of the Council Directive. Section 26 interprets European Communities regulations because issues of interpretation have arisen.
That is a nightmare for anybody who is trying to make sense of the insurance business because you either deal with primary legislation and the interpretation of primary legislation or you deal with regulations made under primary legislation. We have two codes running together and it is extremely difficult to operate them. I know there are constraints on person power, Departments and priorities but it is extremely important that we should try to have our insurance code in one primary code and that any regulations are made under that primary code so that they sit in well with it. What the Minister is trying to do in these two technical sections is to redress the problem of running two if not three codes together and this is very difficult.
Mr. S. Brennan: I cannot disagree with the Senator. There is a massive consolidation job to be undertaken, not just in this legislation but in all areas. The most helpful thing I can do arising out of these comments is to bring formally to the attention of the Attorney General the comments that have been made by the Senator and my own comments which indicate that I support the general direction of what she is trying to do in consolidating legislation and tidying it up. There are substantial difficulties in relation to resources but it is something that will have to be undertaken.  Occasionally various Governments get around to consolidating areas of legislation but I cannot wait for that consolidation work to go on and I need this clarification sections put in here. I will formally bring the Senator's wish in this area to the attention of the Attorney General.
Question put and agreed to.
Sections 26 and 27 agreed to.
An Cathaoirleach: Amendments Nos. 44 to 49, inclusive, are related and may be discussed together.
Government amendment No.44:
In page 16, line 17, to delete “the State,” and substitute “the State, in respect of risks situated in the State,”.
Mr. S. Brennan: Section 28 deals with the insurance compensation fund. It proposes certain restrictions on who may benefit from the fund. The amendments proposed to this section cover a number of issues. Some are designed to simply clarify a number of aspects of the section. For instance, the proposed new subsection (1C) provides that the limitations proposed by this section on payments from the fund shall also apply to payments by the insured to third parties. Amendment No. 48 which proposes the insertion of a new subsection (5) exempts Irish insurers from the payment of the 2 per cent insurance levy on policies issued in respect of risks situated outside the State. Accordingly, a definition of risks situated in the State to which the 2 per cent levy will continue to apply has been inserted in the proposed new subsection (7). I can hear Senator Robinson thinking at this stage about the location of risks in the State.
Mrs. Robinson: The thought had occurred to me.
Mr. S. Brennan: Considerable efforts  are being made at present to attract financial institutions and insurance companies to our International Financial Services Centre at the docklands. The application of the 2 per cent levy to non-life insurers operating in the dockland centre could act as a disincentive to investment as it would tend to reduce the competitiveness of these operations, that is, non-resident policyholders could probably obtain cheaper cover elsewhere. Thus the operation of the compensation fund levy could be a critical factor in influencing the decision of a non-life insurance company to locate or not to locate in our new financial services centre. As Shannon can also market the same activities as the International Financial Services Centre, prospective clients could also be put off setting up there. A certain amount of foreign business, mainly marine, aviation and transit policies, is also written by insurers not resident in the centre or in Shannon and the 2 per cent levy is currently payable on these policies. In order to be equitable these policies should also be exempt from the 2 per cent levy. The loss of income to the fund will be marginal arising from the proposed amendment.
Following on the above amendment, it is also proposed to remove the entitlements of policyholders outside the State with policies issued in the State to any benefits from the insurance compensation fund on the grounds that those who do not contribute should not be in a position to benefit from the fund. The last two lines of subsection (2) which insert a new subsection (1B) are being deleted and replaced by a new subsection (1D). This will ensure that while corporate or unincorporated bodies are not in themselves eligible for any benefits from the fund, any individual third party having to claim from such a body will be eligible for such benefits. This is being proposed on the grounds of social equity. Senator Hogan's amendment No. 46 proposes that all policyholders, and not just personal policyholders, be compensated in any winding-up of an insurer.
While the protection afforded by the fund will indeed be somewhat restricted  under this section, the Government's view is that this change is absolutely essential as the present arrangements expose the funds to a potentially unlimited liability. The existing arrangements are simply too expensive on the community at large. The proposed new arrangements attempt to strike a fair balance between limiting the burden on the fund which, in turn, enables the Minister to keep a balance between the maximum levy of 2 per cent, which is a consideration, and affording some measure of compensation for those who might lose out most. I should mention again that all necessary arrangements have been made to meet the known demands of the administrators of ICI and PMPA. Unfortunately, therefore, I have to say that I cannot accept the Senator's amendment.
Mr. Hogan: I suppose this is a very important section in view of the recent experience we have had in relation to PMPA and ICI. I notice that in any company law, and in particular in relation to a winding up, a liquidation or a receivership, the trend is that once the Revenue Commissioners and the secured creditors are looked after in terms of the sale, or in terms of the State intervention, the unsecured creditors are often left to find their way in the dark and to get out of their problems in their own imaginative way.
This philosophy is permeating the Minister's thinking on this matter in that he is prepared to go so far in relation to absolving and qualifying personal policyholders for the insurance compensation fund but he is not prepared to go any further than that for all policyholders. There should not be anything precluding the Minister from doing that because if one applies the same argument in relation to the winding-up of a particular business, the fact is that once the Revenue Commissioners and banks are looked after very little effort is made on the part of the receiver to pursue the market further to get a better price for the business as a going concern in order to assist the unsecured creditors. That is my line of thinking on this amendment.  I am unhappy that we cannot extend this section to all policyholders and not just personal policyholders. The Minister will have to convince me further before I will withdraw my amendment.
Mr. S. Brennan: All I can say is that the compensation fund is funded by policyholders. It is a levy on the industry and it is being paid at present by policyholders. First we will have to try to make sure that the 2 per cent stays at 2 per cent and, secondly, at a suitable time to try to remove or phase it out. That is important. One might be stuck with the dilemma of having to decide who needs the compensation most and we came to the conclusion that the area of greatest need was more likely to be the personal policyholder. I am aware that there might be some overlap and possible difficult areas. For example, a small person might have a company——
Mr. Fallon: A small shopkeeper.
Mr. S. Brennan: Yes, a small shopkeeper could have a company in which case he would not be liable to pay compensation and another person's company might be unincorporated and so on. So there are marginal problems but, if I am to restrict the fund, I have to draw the line. The fund can look after ICI and PMPA but I would not like to see unlimited exposure to it. The UK Policyholders' Protection Act has the same line drawn between the corporate and the personal policyholder. If there is some other line we can draw I would certainly be prepared to listen to it but, as of now, it seems that the bulk of business is carried on in an incorporated fashion and small businesses, such as shopkeepers, tend to be unincorporated in which case they are protected. It is not a neat line but there is very little that is neat in this area. One has to make a judgment about where to put in a line and hold it.
Mr. Hogan: I appreciate that there is always a difficulty in relation to margins no matter what scheme you draw up.  Nevertheless, these people are paying into the compensation fund through their policies and premiums the same as every other policyholder and on a point of principle they are entitled to be considered favourably for the insurance compensation fund the same as the people who have personal insurance policies and who contribute their 2 per cent. I was hoping the Minister would take the opportunity today to say that he would be phasing out the 2 per cent very shortly in relation to PMPA but I understand from media reports that Mr. O'Kelly, the administrator of PMPA, needs a further £100 million in order to solve the financial problems of PMPA. Recent statements from him would indicate that we will have the 2 per cent compensation fund for a good while to come.
I am reluctant to withdraw my amendment on the basis that I believe every policyholder who makes a contribution of 2 per cent to the compensation fund is as entitled to get cover or extension of cover or access to the compensation fund as people under personal insurance policies to whom the Minister refunded.
Mr. S. Brennan: We could probably argue this at length. I know the changes represent a very significant reduction in the level of protection offered from the fund. I am crystal clear about that. For that reason we are not entering into it in any way lightly. They are absolutely necessary because the present arrangements are quite simply too generous and they expose the fund to potentially unlimited liability. Adequate arrangements have been made to cater for all foreseeable demands rising from the present administration of the two companies. It would be completely untenable to continue to leave the fund exposed to the possibility, however remote, of any further new demands in the future. The current statutory arrangements under which the Minister strikes the maximum level of 2 per cent on non-life premium income each year is the most that could reasonably be demanded of or borne by  policyholders to provide against insolvencies on the part of insurance companies.
It is to be hoped that the fund will not be called into action again but, if it is, it seems reasonable to try to strike a balance between the burden this will place on the policyholder and, at the same time, try to get a balance between that and compensating those genuinely in need. I would prefer not to have to make a change like this, but it is a sensible one. We have to draw the line somewhere. If the Senator or any other Senator can suggest some other way of drawing this line I certainly will take it on board. I must draw a line because we cannot leave the fund exposed indefinitely. The 2 per cent is the maximum limit which we could attempt to permit on it. In the event of some difficulty it would not rule out particular legislation for a particular company which, as Senators will recall, we had in the past.
Mr. Hogan: I can see the Minister's point. Perhaps he will deal with it on Report Stage. If we can come up with a formula in the meantime I will be glad to do so. Would the insurance companies themselves have a role to play in the compensation fund we are talking about here? I do not see why the 2 per cent should be applied to the consumer in relation to the problems of ailing insurance companies and the difficulties that they might have got into through mismanagement in the past. The insurance companies themselves should have an opportunity and should be asked to make a contribution each year towards an insurance compensation fund.
Perhaps that would give the Minister wider scope and sufficient finances to extend the scope of this section. I will withdraw my amendment on the basis that I will consider submitting an appropriate amendment on Report Stage. I would be grateful if the Minister in the meantime would consider a Government amendment on Report Stage.
Mrs. Robinson: I think I must be getting confused at this stage. I cannot see  the difference between Government amendment No. 45 and Senator Hogan's amendment No. 46. I take it that amendments Nos. 45 and 46 are to achieve the same purpose and, therefore, the Government amendment, in fact, achieves that purpose. As I understood that purpose, it is a slight broadening of the scope of the fund because it is realised that the scope of access to——
Mr. S. Brennan: As I understand it, Senator Hogan wants to allow access by all policyholders, whereas I want to limit it to non-companies.
Mr. Hogan: Individuals.
Mr. S. Brennan: Yes.
Mrs. Robinson: Then I do not understand the thrust of amendment No. 45 which is a Government amendment. That, in effect, deletes the very clause that Senator Hogan was trying to delete.
Mr. S. Brennan: Perhaps Senator Hogan can explain his amendment to Senator Robinson.
Mr. Hogan: Government amendment No. 45 is similar to amendment No. 46 but it has to be taken in the context of amendment No. 47 (1D) where the Minister is carrying out the restrictive process that he speaks about. When we are discussing section 28 we are discussing all the amendments to it. That might help to overcome some of the confusion.
Mrs. Robinson: Yes.
Mr. Hogan: The Minister is taking something out and putting another bit in at amendment No. 47 (1D).
Mr. S. Brennan: We are taking out line 19 — in this subsection ‘person’ does not include a body corporate or unincorporated body of persons — and putting in subsection (1D) instead.
Amendment agreed to.
 Government amendment No. 45:
In page 16, lines 19 and 20, to delete all words from “In this subsection” to “persons.”.
Amendment agreed to.
Amendment No. 46 not moved.
Government amendment No. 47:
In page 16, subsection (2), between lines 20 and 21, to insert the following:
“(1C) Where any sum referred to in subsection (1B) relates to the liability of the insured to a third party, the limitation prescribed by that subsection on payment out of the Fund applies to the sum required to meet the liability of the insured to that third party.
(1D) Subsection (1B) does not apply to any sum due to a body corporate or unincorporated body of persons unless the sum is due in respect of the liability of the insured to a third party being an individual.”.
Amendment agreed to.
Government amendment No. 48:
In page 16, between lines 24 and 25, to insert new subsections as follows:
“(4) Section 3 of the Insurance Act, 1964 (which provides for payments out of the Insurance Compensation Fund) is hereby amended by the deletion from subsection (2C) (b) (inserted by section 9 of the Act of 1983) of ‘the Minister may at any time waive all or any part of the said debt on behalf of the Fund’ and the substitution of ‘the Minister may with the consent of the Minister for Finance at any time waive all or any part of the said debt on behalf of the Fund.’
(5) Section 6 (2) (d) of the Insurance Act, 1964 (inserted by section 10 of the Act of 1983) is hereby amended by the deletion of the definition of ‘aggregate  income’ and the substitution of the following definition:
‘aggregate income’ in relation to an insurer in respect of any period, means the gross amount of premiums paid or payable to the insurer in respect of the policies issued by him in the State in that period in respect of risks situated in the State;
(6) In this section ‘the Act of 1983’ means the Insurance (No. 2) Act, 1983.”.
Amendment agreed to.
Government amendment No. 49:
In page 16, between lines 24 and 25, to insert a new subsection asfollows:
“(7) A risk shall be deemed to be situated in the State for the purposes of sections 3 and 6 of the Insurance Act, 1964, as amended by this section, where the policy or other instrument of insurance relates to—
(a) property consisting of buildings or buildings and their contents, in so far as the contents are covered by the same policy or other instrument of insurance, if the property is situated in the State;
(b) vehicles, including land vehicles, railway rolling stock, aircraft, sea, lake, river and canal vessels, if the vehicle is registered in the State;
(c) travel or holiday risks, whatever the class concerned, if the policy or other instrument or insurance is issued in the State;
or, in any other case, if the policyholder is ordinarily resident in the State or if the policyholder is a legal person and the establishment to which the policy or other instrument of insurance relates is situated in the State.”.
Amendment agreed to.  Question proposed: “That section 28, as amended, stand part of the Bill.”
Mr. Fallon: I understand totally what is behind Senator Hogan's amendment. If the Minister could look at it with a view to improving the situation that would be very welcome. The whole 2 per cent levy and why it was imposed are still matters of concern for every policyholder. The fact is that grannies with modest fire premiums are now paying for the ills of two insurance companies. Obviously that is unfair and the sooner it is changed the better all of us will like it. Of course it is adding to the cost of insurance.
In regard to Senator Hogan's reference to the administrator of the PMPA looking for additional funding, I am not aware of that. The PMPA were an umbrella body for a whole series of activities right across the country, garages, building societies, the PMPS and other activities. I recall on the PMPS issue, the late George Colley when he was Minister for Finance at the time of the collapse of the Irish Trust Bank, paying those unfortunate depositors with the Irish Trust Bank every penny of the money they were about to lose. In the case of the AIB and the ICI affair the State saved the finances of the AIB on that issue.
There has been very little word about the unfortunate PMPS depositors and other creditors who were left high and dry when the PMPS went out of business. Whilst there may not be — and I am not sure if there is — a legal obligation on the PMPA who are trading at the moment and seem to be looking for business, and are exploring all kinds of new avenues to get in new business, I believe that there is a moral obligation on that company who are now trading and are being propped up by the granny premiums, grannies who are paying modest premiums, fire premiums and so on, who never had a car in their lives, to come to the aid of the PMPS depositors who lost a lot of money in that sad debacle. While it is not part and parcel of this Bill I feel I should raise it at this level and perhaps the Minister would have power to ask them to redress this problem that exists  for the creditors and the depositors of the PMPS group.
Question put and agreed to.
Government amendment No. 50:
In page 16, before section 29 to insert a new section as follows:
.—(1) In every winding up, the assets, wherever situated, of an undertaking representing technical reserves required to be established and maintained pursuant to the Regulations of 1976 or the Regulations of 1984, as the case may be, shall, without prejudice to any right of priority under the Companies Acts, be utilised to discharge debts arising under contracts of insurance made pursuant to its authorisation in priority to other debts.
(2) For the purpose of this section any amount recovered from a reinsurer under a contract of reinsurance relating to a contract of insurance mentioned in subsection (1) shall form part of the said technical reserves.”.
Mr. S. Brennan: The purpose of this section is to provide in the event of a winding up of an insurer for the granting of priority to the insurer's policyholders over those assets wherever situated which the insurer is obliged to maintain to cover its liability to policy holders. In accordance with the relevant EC directives, all authorised insurers are obliged to establish and maintain technical reserves in respect of underwriting liabilities assumed by them. Assets amounting to 80 per cent of these liabilities relating to Irish business are required to be localised in the State. In a winding up situation, all assets representing reserves on Irish business should become available in the first instance to meet claims by the relevant policyholders. The proposed section provides accordingly.
Subsection (2) is necessary to ensure that the priority granted to policyholders over the assets representing an insurer's  underwriting liabilities extends to any amounts recovered from re-insurance also. Re-insurance, as I said before, is the spreading of risks assumed by an insurer with other insurers or specialist re-insurance companies. Under the relevant EC regulations, an insurer is obliged to maintain assets to cover the amount of the liabilities which it retains on its own net account. This subsection provides that amounts recovered by an insurer in the course of winding up from re-insurers are also to be treated as assets relating to Irish business over which the relevant policyholders should have first call.
Amendment agreed to.
Government amendment No. 51:
In page 16, before section 29 to insert a new section as follows:
“ .—It is hereby declared for the avoidance of doubt that an administrator appointed under section 2 of the Insurance (No. 2) Act of 1983 shall have, and shall be deemed always to have had, power to sell all of the business of the insurer or any part of that business and, in the latter case, to carry on the remaining business with a view to its orderly completion.”
Mr. S. Brennan: This new section is purely a declaratory statement to confirm that an administrator appointed under section 2 of the Insurance Act of 1983 has the power to sell all or part of a company under administration and where only a part of the business is sold to run off the remaining part of that business.
Amendment agreed to.
Question proposed: “That section 29 stand part of the Bill.”
Mrs. Robinson: I hope that the Minister would have power by order to prescribe the qualification and experience of actuaries for this purpose. I would like if the Minister could give clarification as to whether there are standard qualification that he would be prescribing or if there is an existing practice in that area that he would be invoking.
Mr. S. Brennan: There are practices and there is membership of, for example, the Institute of Actuaries. There are also the ones that are based in the US. Does the Senator want a full list of those? There are procedures and there is membership of appropriate bodies which we recognise. I can get the Senator a list of them if she wishes.
Mrs. Robinson: If the Minister could perhaps provide that information it would be helpful. Also what proportion of insurers at present do have actuaries employed? Some of the larger companies certainly would, but is there a significant proportion of companies who would not have actuaries employed at the moment?
Mr. S. Brennan: No, nearly all existing life assurers already have appointed actuaries so the sanction, by and large, only makes statutory what is existing practice. Nearly all existing life companies have appointed actuaries. At present the required qualifications to practice as an actuary under insurance law are set out in the Actuary Qualifications Regulations, 1941, Statutory Instrument 75 of 1940 which specify that an actuary should be either a fellow or an associate of the Institute of Actuaries, or the Faculty of Actuaries, or a person approved of by the Minister as having actuarial knowledge. The Institute of Actuaries is the London based UK actuarial body and the faculty is based in Edinburgh. This subsection will allow the Minister to add to those requirements in the case of the person appointed as actuary to a company and to stipulate certain further requirements in relation to experience, for example, so many years working in the business of insurance and so on.
Mr. Hogan: We may be a bit confused here. I am certainly confused because amendment No. 52 deals with the duties of an auditor. Is that a separate section?
Acting Chairman: That is a new section also.
Question put and agreed to.
Government amendment No. 52:
In page 16, before section 30 to insert in Part II a new section as follows:
“ .—(1) If an auditor of an insurer—
(a) has reason to believe that there exist circumstances which are likely to affect materially the insurer's ability to fulfill its obligations to policyholders or meet any of its financial requirements under the Insurance Acts, or
(b) has reason to believe that there are material defects in the financial systems and controls or accounting records of the insurer which are likely to have that effect, or
(c) proposes to qualify any certificate which he is to provide in relation to financial statements or returns of the insurer under the Companies Acts or the Insurance Acts, or
(d) decides to resign or not seek re-election as auditor,
he shall report the matter to the Minister in writing without delay.
(2) The auditor shall send to the insurer a copy of any report made by him to the Minister under subsection (1).
(3) Whenever the Minister is of the opinion that the exercise of his functions under the Insurance Acts or the protection of the interests of policy  holders so requires, he may require an auditor of an insurer to supply him with such information as he may specify in relation to the audit of the business of the insurer and the auditor shall comply with the requirement. The Minister may require that in supplying such information the auditor shall act independently of the insurer.
(4) In the case of an insurer having its head office outside the State, the duties imposed on an auditor under this section shall apply in respect of business written by the insurer at its establishment in the State.
(5) No duty to which an auditor of an insurer may be subject shall be regarded as contravened, and no liability to the insurer, or to its shareholders, creditors or other interested parties, shall attach to the auditor, by reason of his compliance with any obligation imposed on him by or under this section.”.
Mr. S. Brennan: The purpose of this new section is to ensure that auditors notify my Department as soon as they encounter any difficulties or potential difficulties facing a client insurer. This section will also remove any existing constraints on auditors reporting a problem to the Department or discussing with the Department the affairs of their clients. The Minister is also provided with the power to require an auditor of an insurer to submit specific details about his clients financial position and he may require an auditor of an insurer to supply him with such information as he may specify in relation to the audit of the business of the insurer and the auditor shall comply with the requirements. The Minister may also require that, in supplying such information, the auditor shall act independently of the insurer.
The obligations laid down in this new section are important as they provide for an additional perspective on the financial well-being of insurance companies which will assist the Department in their supervisory duties. Earlier reporting of difficulties will, I think, give us valuable  time as the supervisory authority to consider remedial measures necessary to safeguard the interests of policyholders. By and large, auditors will have discretion as to whether to report on any matter to the Minister having regard to the materiality of the issue and its impact on the insurer's financial position. It should also be noted that, as a safeguard to insurers, an auditor is obliged to copy any report of this kind to the insurer also. It should be stressed that this is not a type of “cry wolf” provision in that only matters which are likely to materially affect an insurer's solvency position will be reported by auditors to the Minister. In practice this will probably mean that the auditors will be reporting in similar vein to an insurance company's shareholders in any case.
Mr. Hogan: I am concerned about some of the phraseology used in this new section. Subsection (1) refers to financial requirements and there is no definition of “financial requirements” in this Bill. I would be concerned that this term could be interpreted as covering every and any financial requirement contained in the Insurance Acts which would place a great burden on the auditors.
The Minister needs to specify what “financial circumstances” and “financial requirements” mean. You can expect auditors to know a lot and they should know most things about the goings on in a company but they cannot be expected to be aware of all the circumstances which, had they been known to them, would have led to a report to the insurance section as set out in the Minister's amendment. It is putting the auditors in a very invidious position in that every and any financial situation that might arise could be construed as providing a financial requirement under this amendment. If that information had been sent to the Department we might have averted a very serious financial situation for the insurance company.
Mr. S. Brennan: I wonder if I might be  excused to go and support the Government?
Mr. Fallon: The intention was to adjourn the sitting at 5.30 p.m. The Minister will be missing for ten or 12 minutes. May I move the Adjournment of the House now until 6.30 p.m.?
Progress reported; Committee to sit again.
Sitting suspended at 5.30 p.m. and resumed at 6.30 p.m.
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