Wednesday, 1 June 1988
Seanad Eireann Debate
(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
(3) Whenever the Minister is of the opinion that the exercise of his function under the Insurance Acts or the protection of the interests of policyholders 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.”.
Minister of State at the Department of Industry and Commerce (Mr. S. Brennan): This is a new section. I want to ensure that auditors notify my Department as soon as they encounter any difficulties or potential difficulties facing a client's insurer. That is a fairly significant  measure. This section will also remove any existing constraints on auditors in reporting a problem to the Department or in discussing with the Department the affairs of their clients. The Minister is also provided in this section with the power to require an auditor of an insurance company to submit specific details about his client's financial position and he may require an auditor of an insurance company 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 also require that, in supplying such information, the auditor shall act independently of the insurance company.
The obligations laid down in this new section are very important as they provide for an additional perspective on the financial well-being of insurance companies which, I think, will assist the Department in their supervisory duties. Earlier reporting of difficulties, I am convinced will give the Minister valuable time as the supervisory authority to consider what remedial measures are necessary to safeguard the interests of policyholders. By and large, a Chathaoirligh, auditors will have discretion on whether or not to report on any matter to the Minister having regard to the materiality of the issue and its impact on an insurer's financial position. It should also be noted that, as a safeguard to insurance companies, an auditor is obliged to send a copy of any report of this kind to the insurance company also.
I want to stress, as I said already perhaps, that this is not a “cry wolf” provision in that only matters which are likely to materially affect an insurance company's solvency position will be reported by auditors to the Minister. In practice, this will probably mean that the auditor will be reporting in a similar vein to an insurance company's shareholders. The purpose of this section is to ensure that auditors notify my Department as soon as they encounter any difficulties or potential difficulties which face an insurance company. To that extent it is quite a radical proposal, I suppose.
Mr. Hogan: As we were saying on the previous occasion when we were discussing this section, I am very concerned at the wide-ranging powers the Minister will be asking an auditor to comply with under the terms “financial requirements” or “any of its financial requirements” as mentioned in the Bill. There is nothing in the Bill which defines exactly what the financial requirement is, or what financial requirements would be needed by the auditor to satisfy the Minister that the necessary information he sought in relation to a solvency, or otherwise, would be complied with. It puts an onerous responsibility, and very grave responsibility, on the auditing profession if every single, possible piece of information that could have a bearing on the insolvency or otherwise of an insurance company was not disclosed by the auditor, resulting in that auditor being put into a position leading to very serious trouble.
The powers the Minister is asking the Seanad to accept in this new section are too far-reaching. No auditor can be expected to know every little detail and financial requirement that may or may not have a bearing on the affairs of an insurance company. The insurance company has its own auditing procedures through its in-house accountant, and in-house financial accounting section. For an audit to be carried out certainly would not mean that the auditor would be privy to all information. Before I go further I would like the Minister to clarify what he means by the term “financial requirements” and what definition he would put on those words “financial requirements”.
Mr. Ferris: I would like to follow on in the same vein as Senator Hogan. This is an extraordinary amendment which gives most unusual powers to the Minister to make the most unusual demands on an accountant or auditor who, in fact, is employed by the company. The first responsibility of this accountant or auditor is to the person who is paying him to do the job, and do the job properly. We are suddenly putting an imposition on that person to inform on the company  that is paying him. We take it that, if everything is all right, this will not be required. I am quite sure that auditors, like everybody else, have to live within a code of conduct amongst themselves. Otherwise they would not get the stamp of approval from the various associations.
This is a most unusual procedure to be followed here. The Government expect an auditor employed by the company to give them information which would enable the Government to take action. If the Government have a responsibility in this area, they should be able to provide this kind of supervision themselves without expecting an employee to become an informer. The National Insurance Brokers' Association, the association of all legitimate companies in this area, have a set of rules. Their rules require them and members of the association to keep proper records at all times. Proper account should be kept of all moneys received on behalf of insurance companies and should be fully accounted for to the companies. The association have a set of rules. Now we are setting down a separate rule for the auditor indicating that he must divulge what might be confidential information.
I would like clarification about financial systems and what the Minister intends now. Naturally, we want to ensure that the industry is viable, that it is run properly and that the client or the customer is protected. It is debatable whether, in fact, this type of requirement by law on an auditor makes his job almost incompatible with his pay master. Have there been discussions with accountants, auditors and their associations about this new provision? What is their response? With this kind of demand being made on them, it is quite likely that insurance companies could have the gravest of difficulties in getting auditors to accept a brief from them in the knowledge that there is a legislative requirement to report directly to the Department. The Department should have their own auditors in a supervisory capacity. The Revenue Commissioners or any other such State agency should be able to inspect  the books of any company at any time, but I do not think it is fair to require an auditor employed by the company to do both jobs, to do our job and to do the company's job.
Mr. Fallon: I would have thought that, an auditor being a professional person, he would be anxious to comply. I accept the point that he is an employee of the company in a situation like this, but he has standards, he has a role to play as a professional man. I would have thought that if he saw there were some things wrong, if there was any reason at all to believe that there were material defects in the financial system controls and the accounting records of the insurer, apart altogether from having it enshrined in legislation, it would be his duty to inform the appropriate body, which is the Department of Industry and Commerce, that these things were happening. I must confess that I do not feel as strongly as the previous two speakers on this section. I regard it as being reasonable. I am as concerned as anybody else to do the proper thing but I feel the Minister is taking further steps to safeguard the companies, the consumers, the policy holders and all the rest and I do not think it is an unreasonable amendment.
Mr. J. O'Toole: I rarely take an opposite view from my colleagues on this side of the House but I certainly welcome most vehemently this proposal from the Minister. It is absolutely necessary. I have never heard such nonsense about the role of the auditor. The auditor is not an employee of the company. The only need for an auditor is in order to give confidence to the consumers that the company is being run on proper lines. On the Second Stage of this legislation I called for a more interventionist approach on the part of the State and more of an involvement in the whole industry. I welcome this. I want to give an example.
In one of the major insurance collapses — that of a major motor company — in the last number of years, it was well known within the industry for a number  of years before that that the company were only able to meet their liability on the basis of the premiums which were to be collected in the following year; in other words, instead of doing revenue accounting where they were meeting the liability they incurred each year, they were taking the premiums for the next year in order to pay for the liability of the last year. That kind of cash accounting might work in some organisations but it certainly cannot work in the insurance industry if we are to give confidence to the people who are buying insurance and who are depending on the company or the broker. Therefore I would certainly say that in order to increase accountability this gives the State a clear overview and a clear understanding of what is happening within a company. I regret to use words like “informing”. They are emotive words which were sunk in our history——
Mr. J. O'Toole: Yes, but this is the kind of thing that has led us into the position where tax defaulters become local heroes. As far as I am concerned, an auditor would have a clear duty, not just to walk away or refuse to sign his or her name to the audited accounts of the company but, if he or she was unhappy about the accounts, to convey it to a higher authority.
As far as I know, the regime that auditors impose upon themselves would be very much in line with this kind of thinking. I may be wrong, but from my information and the people I know in that business, they have very strict rules for themselves. They feel accountable and they would welcome this because it takes them out of an awkward position when they find something wrong. What are we really talking about here? Let us forget about the high-falutin' theorists or the philosophy of this. Say I am an auditor and I am coming in to audit the books of this company: I look at the books and I see that although the books might balance on a cash basis, in terms of meeting  the liability for a number of outstanding claims, which might not come to court for three or four years, I must see, written down in those books, what the liability will be. I see that the company cannot meet that liability. In other words, according to the books, they are bust. At the same time while I am sitting in this office and looking out through the one-way glass I see people coming in and paying premiums into this company. These people are dependent on this company and have a trust in the company. What am I to do? Am I supposed to let that continue? I think not. This amendment makes it an “out” because it requires me to do something about it. I welcome it.
Mr. Mulroy: I would also like to welcome this amendment. In recent years insurance companies have made very heavy underwriting losses. There are companies who are sustaining these losses by utilising investment income. In view of the fact that it takes such a long time for a claim to come to fruition the policyholder must be protected. The Minister has a responsibility to protect the policyholder by every means possible. This amendment will give that added protection to the policyholder. In the final analysis that is most important.
Mr. S. Brennan: I thank the Senators for their comments on this proposed amendment. I want to make clear that we are talking about financial requirements under the Insurance Acts. I would not be that interested in an amendment which sought to wreck professional arrangements between clients and an auditor. That is an important relationship and one that I would not like to drive a coach and four through. That is why these are very specific circumstances and very specific areas of denting that relationship. It is done for the very good reason that part 1 (a) of the amendment says: “likely to affect materially the insurer's ability to fulfil its obligations to policyholders or meet any of its financial requirements under the Insurance Acts”.
 In response to the question about defining what “financial requirements” mean, I would have to respond that financial requirements in this context mean those financial requirements which are laid down under the Insurance Acts. That obviously does not include any other financial requirements that are not laid on the company under the Insurance Acts. I think it is entirely reasonable that the Minister should set out to ensure that the companies comply with the Insurance Acts. What better person to give the Minister that assurance than the person most closely associated with the financial affairs of the company, at least from an auditing point of view, the company's auditor. It is a limited area of reporting to the Minister under the Insurance Acts, not the broader area. That is a very important point.
If we spelled out the particular financial requirements it would be unwieldy in this Bill and would also perhaps over-narrow the scope of the section. I am anxious that, if we are going to go down this road of asking the auditor to be of assistance to the Minister, we do not over-tie the auditor's hands or we will not get any real benefit from this amendment.
I should also ask Senators to focus on the word “materially”. The auditor has to have reason to believe that there are material defects, such as in (b) “or he has reason to believe that there exist circumstances which are likely to affect materially the insurer's liability”. Therefore you are not talking here about nitpicking or any minor details or any tittle-tattle or rumour-type of financial information which will be passed between an auditor and a Minister. You are talking here about items which are likely to materially affect the insurance company's ability to fulfil its requirements. That means that the requirement we are putting here is for very serious areas and areas which materially affect the company's ability to meet, for example, its solvency margins requirements and its obligations to policyholders.
Senator Ferris spoke about the auditor working for those who pay him. I know exactly what he means but it is probably  too narrow a definition of an auditor's role. An auditor is not appointed by the board of a company. He is appointed by the shareholders and those shareholders have public duties as well as their own private duties. It is eminently sensible to conclude from that that the auditor also has a public duty as well as a private duty to his client. We are interfering in the normal relationship here to simply say to the auditor that in the public interest if he spots something which might materially affect these companies, he should report that to the supervisor of insurance companies, which is eminently sensible.
The point Senator O'Toole made is very valuable. It takes this dilemma away from many auditors, that when they stumble on some of these difficulties they are torn between their responsibility perhaps to the shareholders and their responsibility to the public. If there is ever a conflict in that arena, then it is certainly a very difficult ethical area for auditors. This section will go some way to resolving that dilemma for auditors in that their responsibility will now be to report something material to the Minister and also to send a copy to the company so that the company are aware of what is going on.
Senator Fallon talked about the financial systems. I agree with what he says that the financial systems in insurance companies are absolutely essential because if they are not right and not continually checked and if the control functions are not put in place then you could get into difficulties very quickly and that could threaten the solvency of the company. For that reason paragraph (b) is very important there.
There are similar powers in the UK legislation. I am not necessarily saying that we should automatically copy that — we do not — but having said that and being practical about it, they have developed a certain expertise in financial areas and we take the best of what they have and we reject aspects of it that do not suit our system. This is one aspect that seems to suit here because the insurance industry in the UK is very  highly developed, very sophisticated and they have very similar powers in their legislation. That is worth noting.
I welcome Senator O'Toole's comments and reiterate the independent nature of auditors, albeit being paid by the company ultimately. I think very few auditors would accept that even though they are paid by the company they are not independent. In fairness to any auditors I have come across from time to time, if their independence is in any way interfered with by the company they are never slow to tell that to the company.
Mr. Ferris: Could I first reassure the Minister and indeed my colleague, Senator O'Toole, that initially when I spoke on this amendment I said I was quite sure there was a code of conduct already governing these people? I also said I was satisfied that that code of conduct would put a certain demand on the profession. I did ask the Minister — and he did not reply — if he had consultations with the association that governs auditors to find out if they feel this is an unusual requirement to make on them. In future may we take it that all auditors working for anybody will have this public responsibility? There is a certain area of incompatibility, anyway.
Senator O'Toole thought that the companies did not employ the auditor but of course they do. The Minister just concluded by saying that they do in the final analysis. If a company, through its shareholders, is employing auditors to do a job their first responsibility is to the shareholders. If they are not satisfied with the material ability of the insurers to fulfil their obligations they have a responsibility to the shareholders. I want the Minister to have the information but what I am concerned about is that we are using somebody else's agent to get it. I think the State has a reason for having this information and should have a structure  within the Department to do it. We are just writing into legislation an obligation on somebody else to do it for us, just because we feel that they have a public responsibility over and beyond any other profession. Is it that this particular industry is a problem and that we are worried about it because it is a major industry?
There were problems in the past and the information that finally came out was available even to the Government. It took Deputy Frank Cluskey to move to do something something about it, to protect a whole range of people in the motor industry who were insured. That information was available for some time. The Government knew it but it took some ingenuity to find out how they could overcome the problem without bankrupting a whole area of insurance on which ordinary people in the country were dependent, people who had paid their premiums. I am not worried about the information but I am worried how weak it is that the Government are depending on somebody else, who is paid by somebody else, to give us information, apart altogether from their natural responsibility in their profession. I think it is a bad way to go about it. It is a weak way to do our business. We should have the power ourselves and the staff.
Mr. Hogan: I think the Minister has sufficient powers under section 14, that he has been granted adequate powers of investigation in order to investigate the affairs of the company if there is a doubt in relation to solvency of a particular insurance company. While I could agree that the Minister has to seek and get information in order to satisfy himself that solvency might be an issue in a particular insurance company, I agree with Senator Ferris that there is very loose terminology in terms of the financial requirements that are demanded of an auditor which put tremendous pressure on any auditor to comply with the letter of the law in relation to the insurance sector.
An audit examination is carried out primarily to enable an auditor to express  his professional opinion in relation to the balance sheet and the profit and loss of a company, no more or no less. That is done for the insurance company involved. It is up to the Minister then to interpret those comments and interpret the auditor's report and if he considers that there is a case where he should send some of his own departmental people into the insurance company to carry out an investigation after that, then so be it. I would think you are calling into question the good professional conduct, standards and guidelines of the accountancy profession. I believe no auditor would feel it incumbent on him to hide an insolvency situation that would bring an insurance company to the brink of putting clients' money and policyholders' funds in jeopardy. The Minister has granted himself adequate powers of investigation under section 14 to ensure that he knows whether the funding arrangments in that insurance company are adequate or not. Despite that I entirely sympathise with what the Minister is trying to achieve, I would not be happy with the manner in which he is trying to achieve it here.
Mr. J. O'Toole: I want to reiterate some points and I want to deal with some of the arguments that have been raised. The role of the auditor is certainly something that needs to be looked at, and looked at very carefully. I do not believe that chartered accountants or anybody else would feel that this was bringing the role of auditor into disrepute, quite the contrary. This is the kind of legislation which adds to the status of the auditor in a sense that we find ourselves in a position where we can trust them more. I do not understand what Senator Hogan has said. Representing as he does a party who have been supportive of cutting back on the public service at all stages and all times in the last couple of years, he now stands up and proposes that the State should employ auditors and accountants to do a job which, under this clever bit of legislation, we can get subsidised by the private sector. As I understood it he maintained that the Minister should send his people out into the companies to  inspect the books. As I see this legislation the auditor is doing that job. Therefore we save the State money and therefore it is quite in line with the policy of Senator Hogan's party. That is one thing.
The other thing is that it is completely incorrect to say that auditors would not allow a company to reach a position where they might be insolvent. The sad fact is that we have got two glaring examples in the past five years of precisely that happening. It is very simple. Forget again about the general principle or the philosophy. What we have here is that an insurance company is liable for a car crash where a car has been written off and four people have been hospitalised. There are broken legs, a broken arm and somebody dead. Somebody has to assess what this will cost the insurance company in three, four or five years time and somebody has to work out the costing of each one of them. The liability there, depending on the judge's liver on the day, or depending on the goodwill or whatever of the jurors on the day — according to what happens that legislation — will then decide whether or not the company is going to owe £750,000, or £50,000 or whatever.
There are certain basic minimums. There is a major difference between the role of the company accountant and the auditor. The company accountant, who is trying to make the books balance, will write down in the books the liability of an accident as, let us say, £75,000 and will on that basis balance the books. That is precisely what happened in the PMPA debacle. That is precisely the sequence of events: the books balanced; the auditor came in and checked them; they did balance; there was nothing wrong with the cash accounting structure; but in terms of assessing the liability to the company, anybody could see that £70,000 was not going to cover that accident.
If you multiply that example by 1,000 you see the difficulty. I am giving that example to show that having an auditor does not in any way ensure protection — having books audited where the auditor just says: “I have examined and inspected  these books and I find that they balance; they are correct.” The certificate is signed and presented to the shareholders. It is a bit naive also to think that shareholders scrutinise one step after another. We had an example this morning where the largest shareholder in the largest company in Ireland, Irish Life, had no say, or no commitment, or no involvement in a decision which had national implications. This kind of thing can also happen. That is an aside which has little to do with this Bill.
Mr. J. O'Toole: It is absolutely essential that this amendment should go through and it certainly is along the lines of what the trade unions have been asking for, a more interventionist policy. I very much welcome the fact that this intervention by the State in order to have control over what is happening is being subsidised and paid for by the private sector.
Mr. Hogan: I can assure Senator O'Toole that I could not agree with his last ideological statement. That is not surprising, and long may the country run counter to that suggestion made by Senator O'Toole if we want to achieve any progress. As a member of a party who rightly want a reduction in public service numbers, I can assure Senator O'Toole that he is certainly contributing to that process. I am glad he sees that point of view and the direction in which we must be heading.
Mr. Hogan: The Minister will be aware that under section 14 the powers of investigation which he has sought and which we have agreed here in this House are sufficient to give adequate powers of  investigation. If I may paraphrase subsection (2) of that section it says where the Minister directs such investigation he may require the undertaking to furnish to him any return, document, or account whether in relation to the undertaking itself or any connected body which the Minister may specify. I think that gives sufficient power to the Minister of the day to go into an insurance company and carry out an investigation. If the auditor is required in that company to supply necessary information to assist that process, that will be done as part of this investigation. It is very wide-ranging investigative power which has been vested in the Minister. I see no reason why he has to introduce a new section to give powers way and beyond what are necessary in order to avert a situation in which an insurance company might be going into insolvency. The Minister has adequate powers under section 14 at the moment.
Mr. Mulroy: I am not altogether satisfied that a Government investigation will give protection to the policyholder because investigations tend to be time-consuming and cumbersome and they tend to come too late to protect the policyholder. For that reason I am not sure section 14 will give that protection. This amendment will keep insurance companies on their toes. Anyone running a business knows there are areas where they just do not deal with all matters as competently as they should but with this legislation the auditor will point out to the company that they must comply with this provision and keep these books in order and so on. By and large, they will do it and, in the long run, this will give better protection to the policyholder.
Mr. J. O'Toole: An important point has been raised by Senator Hogan. I would just say in all sincerity that I consider section 14 is a toothless tiger without this new amendment. It says that the Minister may direct an investigation whenever he considers that the public interest or the interest of the policyholder so requires but the difficulty with that  section, as I pointed out on Second Stage, is: how does the Minister know? Where does he initiate. What is the catalyst for implementing that section unless somebody brings something to his attention? A policyholder could say: “I suspect and I want something to be looked at” but what this does is to provide the Minister with the ground for initiating and the catalyst for implementing section 14. The two things are bound together. Section 14 on its own means the Minister must be dependent on some form of inspiration before he goes in to investigate, whereas now he has the catalyst in order to begin to implement section 14.
Mr. Fallon: I am surprised the debate on this section has gone on so long. I had a note taken before Senator O'Toole spoke. To me, this amendment the Minister is now talking about is a natural extension of section 14 of the Bill. It is clearly further strengthening section 14 and it has strengthened the whole audit procedures of the insurance industry. I know we are all concerned about and behind that idea. We all know of cases in the past of the two insurance companies who found themselves in trouble. I can remember the years before the PMPA collapsed, when, if you like, the bush telegraph of the industry was saying they are in trouble. I can remember saying to a Minister of State at the time that I felt — this was before PMPA even collapsed — that if the auditors who examined the Legal and General Insurance Company in England at the time were asked to audit PMPA, the company might well be asked to stop trading. Legal and General were a £25 million motor insurance in England and the PMPA case was a repeat performance of Legal and General. Of course, when you audit insurance companies transacting liability insurance or motor insurance where you have large personal injuries, unless you go through each file in detail, and you almost have to have a legal person on hand — and this will have to happen as a result of this section — auditors will no longer be able to ask: “What do you think your outstanding claims will be?” They will no  longer be satisfied, I believe, with a reply from the insurance company on a claim for example, of, £50,000. They will ask and will have to ask for the files. They will have to go through the file with legal people and put a proper valuation on that claim.
Recently, in my own county, a public liability claim estimated at £50,000 by the insurer finally settled two or three years later at £250,000. Therefore, I think that the onus on auditors to go into every claim file in detail and come up with its true settlement value is necessary and this is what the auditor will have to do as a result of this section. If I was an auditor I would welcome this amendment.
One of the most valid points the Minister made in his reply was that it is no longer a case of the auditor saying “Will I be loyal to my company?” He has a strict instruction in writing, in the legislation, the law of the land, that he must report to the Minister. I believe auditors will welcome this. As a result of this section in the Bill we are going to get far more detailed audit and provision for claims will be recognised and treated as the most serious aspect of the audit. Ordinary audits of income, premium income and expenses for wages, salaries and lighting are simple enough but the provision for outstanding claims is the kernel of the future solvency of the insurance company. Rather than being in any way critical of this amendment I certainly welcome it with open arms. It is a proper amendment and I am pleased to have it inserted in the legislation.
Mr. S. Brennan: I have listened carefully, but I am not that taken with many of the arguments. There is something very fundamental involved here. Of course there is a duty on the auditor to shareholders, as Senator Ferris said, and that is an important duty but there is a prior duty to the policyholders who, in my view, have a broader right than the shareholders in this context. That duty to the policyholder is one I would lay on the auditor in advance of his duty to the shareholder. That is getting into deep  water, but I think that in the pecking order of duties, that prior duty to the policyholder who is investing with and working with the company is ahead of that other duty to the shareholder, although that duty to the shareholders is very important and a traditional duty of the auditor to the company. This other duty is slightly ahead of it and for that reason we are right to go this road.
I want to respond directly to the Senator's question about whether we consulted with the accountancy bodies because I know he is interested in that. We had formal consultations with the Consultative Committee of Accountancy Bodies of Ireland, that is, the Institute of Chartered Accountants, the Chartered Association of Certified Accountants and the Chartered Institute of Management Accountants. We have taken a very detailed account of their views and they have been most helpful in letting us have their opinions. We have been unable to accept some of their recommendations, in particular the mechanism for conveying this report to the Minister, but I should stress that it is implicit in the system which they proposed to me that at some stage the auditor would report directly to the Minister. For example, their method of handling this duty was that they would in the first instance report to the insurance company and if the insurance company did not pass on the report to the Minister, they would send it directly. They feel obviously that it keeps their professional relationship alive, if they first tell the insurance company and then they wash their hands of it for a while, but if the insurance company does not pass on the report then they can send it anyway. What they are saying in that argument is that when the chips are down, if the insurance company does not pass on the report, they will then step out of this relationship and do it.
Mr. S. Brennan: I felt quite seriously that was unnecessarily bureaucratic, that if, in fact, an auditor finds something that  in his opinion is likely to affect materially the company's obligations to its policyholders — think about those words: materially affect the obligations to the policyholders — then we should not mess about and say: “Tell the insurance company and hopefully they will tell the Minister, so that that keeps us as nice boys and we do not lose our fees or whatever.” It is much too serious. If an auditor at that stage spots something that is likely to materially affect the company's obligations to its policyholders, then by far the quickest and cleanest way is to send that report immediately to the Minister and send a copy to the company, which they will both have at virtually the same time. It is shorter, snappier and it certainly reflects the circumstances, and again I stress, it would only be in circumstances which in the auditor's opinion “are likely to affect materially the insurer's ability to fulfil its obligations to policyholders” under the Insurance Acts. In those very serious circumstances an auditor really should not delay, but should immediately bring that to the attention of the legal supervisor of insurance companies, the Minister for Industry and Commerce. It is cleaner and quicker.
We consulted with the accountancy bodies and we differed from them mainly on the mechanism which they suggested to deal with this. I thank them very much for their submission and for their very thoughtful point of view. I see their point of view, but which is more important at this stage: to protect the nicety of professional relationships, or to ensure that there is no doubt about the seriousness of insurance companies getting into difficulty and that information not coming out early. If I have to make a decision between those two, then I opt for slightly denting a very strong professional relationship on the basis that they admit themselves, in any case, that if the company did not tell the Minister they would tell the Minister. It seems to me to be of very little difference whether they tell the Minister now or whether they test the insurance company and then  they tell the Minister. It makes no major difference in my view at this stage, particularly if in the auditor's view it is likely to materially affect the ability of the insurance company to meet its obligations.
In those circumstances, it does not matter a great deal whether they do it immediately or whether they give the insurance company the first crack at it. There is also the possibility — one would want to be careful of how one phrases this — that in those circumstances, bringing it first to the attention of the insurance company, they would leave themselves open to perhaps seeing the other point of view, that it was not necessary at the time or it was not so material. It is important that an auditor's first inclination as to what is material is acted on immediately rather than leave himself open to being convinced that perhaps it is not material and, therefore, not acting on it as quickly as it should be acted on. I thank the accountants for their submission which has been very helpful in clearing our mind on that issue.
Section 14 has been mentioned by a number of Senators. This section does not solve my problem. It says: “The Minister may direct an investigation at any time” ... but before a Minister would direct that an investigation takes place, he would obviously need as much input as possible. A letter to the Minister from an auditor bringing to his attention that there was something which might materially affect the company is precisely the kind of information that might lead to section 14 being implemented because the natural response to getting such a letter is to refer immediately to section 14 and send in the investigators.
There is a timing difference between the benefit of section 14 and the benefit of this amendment and it is an important timing difference. For that reason, this amendment, which requires the auditor to bring to the Minister's attention that there was something which might materially affect the company, supplements section 14 and section 14 cannot really be used instead of it. Under section 14 we are more likely to get the information  much later and timing is of the essence in these kind of problems. When you get the information earlier, you can make more use of it and act more swiftly.
I want to stress that what we are trying to do here is build in an early warning mechanism. The person who is likely to find out quickest of all — or one of the people who is likely to find out quickest of all — is an auditor who perhaps is working on the very early stages of the audit and comes across some items which might materially affect the insurer's ability. We are trying to make sure doubly that if an auditor spots something which is very serious he will bring it to the attention of the legitimate authority who have to supervise insurance companies. It is not telltale stuff because the selfsame report has to go to the insurance company and they will know precisely what the auditor told the Minister and, in practice, probably on the same day and at exactly the same time. I imagine an auditor would write to the Minister and circulate it immediately to the insurance company. That is almost certainly the way an auditor would do it so that both parties will have the information at the same time. Both parties are entitled to have that information as quickly as possible. These are the main points I want to make in regard to section 14 and the question of the submission from the auditors.
Mr. Ferris: This debate confirms what all of us, including the Minister, recognise as a special relationship between auditors and their employers, whether that employer is the company, management, shareholders, or the policyholders. This legislation reflects our concern for the policyholders. Naturally this is a new dimension to the requirements. Whereas I have defended the Minister's right to get this information, and to get it as early as possible, I am concerned that the Minister is depending on other people to do it. The Minister has powers under section 14, but he is obviously now admitting that, unless he is told by somebody else, he has no way of finding out. That is  admitting our lack of control over these situations we are all worried about. We are now totally dependent on an outside body who have a national responsibility.
We are putting legislation in place to make it obligatory by law for them to do so. That is why I asked if the Minister had got agreement from the associations. I have seen a copy of their recommendations to the Minister. They recommended another procedure which also took into account the special relationship that we all agreed they have with employers. They felt that the four or five days limit in between, not alone protected that relationship but met the Minister's demand. If five days make that much difference to the material running of a company, we are in right trouble. That is why the Minister should be absolutely specific. They are not satisfied that the words used in this amendment define sufficiently the point originally made by Senator Hogan — the area which puts this responsibility on them. You would imagine the words “affect materially an insurer's ability to fulfil its obligations to policyholders” would meet the day to day requirements of an auditor, but this could be misrepresented. If the Minister is absolutely specific about the information he requires, he should write it down and tell them. Let us not use words that could be misinterpreted. An auditor might consider that a company was materially able to fulfil its obligations but the Minister's investigators might not agree and the public might not agree either.
Let us be very specific. I agree the Minister should get this information. I do not think he should depend on anybody else to give it to him. If the Minister cannot get it or if he wants a prior warning, perhaps this is the best way out of it. We need to look at the words used to make sure that there is no ambiguity about the role of the auditor. Because it is in the Insurance Acts, are the profession to expect it in all other Acts? We depend in the final analysis on an auditor's overview of how businesses are being run. We worry about things being done correctly. If the parent companies are in England and their auditors are in  England, what effect has our law outside of the jurisdiction? Will this Bill apply to a company registered outside the jurisdiction with auditors in London, or do we have to bring in the Extradition Bill as well to meet that requirement?
Mr. S. Brennan: I will not comment on the Extradition Bill under this legislation. The Cathaoirleach might decide it was outside the scope of the Bill. I want to say something which I think is the nub of this. Section 14 gives the Minister power to direct that he gets information. The actual wording is
... He may require the undertaking to furnish to him any return, document or account, whether in relation to the undertaking itself or any connected body which the Minister may specify, necessary for the conduct of the investigation, and he may also require the undertaking to furnish to him returns and accounts duly certified, or any document duly attested, necessary to satisfy him as to the financial state of the undertaking.
The Minister has wide-ranging powers there to get information. This is a parallel mechanism. It is not meant to be instead of and is slightly more qualitative than just getting information. Section 14 gets the Minister the information from the company into which the Minister is thinking about sending investigators.
Here you have an independent opinion and an independent source giving your qualitative information, this is, where the auditor has reason to believe that these circumstances exist. What you are getting here really is a highly valuable opinion on information which has come into the hands of the auditor during the course of his work with the company. They are slightly different mechanisms. They are parallel to an extent, although you may need amendment No. 52 before you embark on section 14. It would be one of the mechanisms which would trigger off section 14.
It is also different in that under section 14 you get the information. You do not get an independent opinion on that information, whereas with amendment No. 52  you may get a letter from an auditor of an insurance company pointing out that he has come across something like this and, in his opinion, he has reason to believe that it would affect the insurer's ability materially to meet his obligations. That is certainly completely different from section 14 but it is also necessary to have it there from a parallel point of view.
I know the Senator is concerned about the fact that the Department get this information. What I am saying here is that we actually need both of these clauses to ensure that we get the earliest possible information. One without the other would mean that we are not closing all of the doors. I am keen here to close all the doors which block the Department getting the earliest possible information. In many cases the Department can do their own thing and have plenty of power but they do not have enough here and do not avail of this additional resource which is sitting there, which is the auditor who may come across a lot of very valuable information well in advance of a Minister deciding to direct that any information should be made available to him. He will probably come across that stuff much earlier than a Minister who would suddenly decide for various reasons that he should seek additional information from a company.
That kind of routine information which an auditor may come across in routine day to day work is almost certain to emerge and surface much earlier. What tends to happen, I would guess, with investigations in that kind of area, and Ministers seeking information, is that it is often too late because a lot of that takes place as a result of rumours in the marketplace, tip-offs, auditors accounts which are finally published and information which is really much too late. This is necessary and it is parallel. It is not a major onus on auditors and it is purely a timing difference between the auditors and myself as to when they actually tell the Minister that they spotted something.
Mr. Fallon: I have a query for the  Minister on amendment No. 52 (c) and (d). If an auditor of an insurer (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 reelection as auditor, he shall report the matter to the Minister in writing without delay. I am worried about the wording “without delay”. It may be too weak and perhaps the Minister could come in with something much stronger like “immediately”. I know it probably makes very little difference, but it would seem to be more positive.
Mr. S. Brennan: I got advice on this point from the parliamentary draftsman. He took the view that it might not be workable to put a specific time limit on it. At the end of the day that is obviously our own decision. I prefer the wording “without delay” in this case because I do not want to rely on the professional competence and integrity of the professional auditors. If this legislation lays it on them to report something which they believe will affect materially a company — and the Act will say eventually that they are to report that in writing without delay — I will rely on the professional integrity of the people involved to do that as quick as possible.
Mr. Ferris: They suggested five days in their submission to the Minister but he considered that was too long. Now we are here waffling about whether “without delay” or “immediately” is the correct wording to use.
Mr. S. Brennan: The Senator might be misreading it. Their submission to me was that that five days was the time between the insurance company getting it and the auditor deciding that he had not passed it on. The auditor was then to pass it on. In other words, the auditor was not laying a time limit on himself; he was laying a time limit on the insurance company. He was saying to the insurance company: “You had better pass it on to  the Minister within five days.” The five days apply to different circumstances. It would be unreasonable to lay five days on the auditor. Certainly the auditors did not suggest laying the five days on themselves. They suggested laying the five days on the company.
Mr. Ferris: I hope the Minister will get the approval of the auditors to do it exactly as he wants it. We have no evidence yet that the Minister will get approval. I know he has had consultation with them, but let us hope he gets the approval from them to operate this extraordinary requirement in the Bill. That is all that worries me. I think the Minister should have it, but let us hope they will facilitate him.
Mr. S. Brennan: It is simply a letter from an auditor, and he would almost certainly send a copy of that to an insurance company. It is laid down here that they would get a copy. It is simply a letter. It need not be more than one page saying “I have come across something in the course of my audit and I think it will materially affect the company and under whichever section of the Bill it turns out to be I am bringing this to your attention”. It would be unreasonable of auditors not to go along with that in the public interest at this time.
Mr. Ferris: If in carrying out that section to the letter of the law the auditor does that and the Minister's inspectors go in and find out that his opinion was not justified, that everything was OK, we can be quite sure that he will not be re-elected at the next annual general meeting. There is a risk. I hope everything works out all right. Will the Minister ensure that he will be re-elected and that he will not be hammered as a result of giving information?
Mr. J. O'Toole: Most shareholders would be only too willing to re-elect somebody they considered had acted honourably and responsibly in trying to protect their interests and the interests and future of the company. The requirements are very strict by the Registrar of Friendly Societies in terms of how the auditor is proposed for election or reelection. I have not the slightest doubt that, as a shareholder in a company, I would feel that my interests were being well protected by having such an auditor.
In moving this amendment I am conscious of the fact that if we insert the word “excessive” in subsection 1 (a) the Minister will have to be aware that if he reduces commission levels to intermediaries the insurance companies might decide that the commission levels were  not sufficient to keep the intermediary in business either. On the one hand if the Minister takes power to reduce the level of commission which he might consider excessive, on the other side of the coin, there might be cases where he should have power to increase the level of commission where it is insufficient.
Mr. Hogan: The Minister would not anyway. The Minister should be aware that insurance companies have decided to reduce commission levels to intermediaries under the pretext of reducing policyholders' premiums. When they reduce commission levels to intermediaries, as sure as night follows day, within a month policyholders' premiums will go up by 10 per cent. That emphasises the very minimal impact commission payments have on the overall finances of an insurance company. As Senator Fallon has pointed out, 5 per cent is the commission on a motor insurance premium. I am dealing now with the non-life side where there is a problem in relation to general insurance. There are reasons that commission payments are attractive on the life side. The commission payments given on the life side are sufficient at present. On the non-life side there are difficulties. If an intermediary was over-reliant on general insurance business, he might run into financial difficulties if insurance companies decide to reduce commissions to such an extent that he will not be in a position to keep going in business.
Sadly we are at the stage now where insurance commissions to intermediaries have been reduced by half over the past three years in most levels of business but this has not reduced the premiums to policyholders. That was the excuse originally given for reducing those commission levels. If the Minister wants to ensure that people will have competition and that they will have a choice in relation to the number of companies they will have at their disposal, if companies want  to continue to use insurance intermediaries in order to give that choice and to give that element of competition to the policyholder, it is essential that the Minister should have some power to raise the level or ask the insurance companies to raise the level of commission payments to insurance intermediaries. I would like the Minister to define the word “excessive” in the context of this subsection.
Mr. Fallon: Section 30 deals with the power of the Minister to require reductions in commissions and states: “Where, in the opinion of the Minister, the rates of commission payments of the holder of an authorisation are excessive, he may, by notice in writing sent by post to the holders, require the holder to reduce ...”. I thought that the other side of the fence would also be covered and that if the Minister felt for some reason or other that the rates of commission were very low he could intervene in that area and perhaps get an increase. I would like to think that that would be part and parcel of the spirit of the Bill. It is a well-known fact that commissions are extremely low. The 5 per cent commission on motor insurance is ludicrous. The commission on household insurance ranges from 12½ per cent to 20 per cent but it is a well-known fact that building societies get something like 25 per cent and this seems a little unfair. I would like to think that this amendment would enable the Minister, if he thought the amount of commission was too low, to say: “Can you not grant a higher commission rate to the intermediares?”
Mr. J. O'Toole: I am very confused about the need for this amendment but I am sure Senator Hogan will spell it out to me in more detail. I understood that the thrust of this legislation was to protect consumers and to give them more confidence in the insurance industry and that the section would ensure that the consumer a person at the end of the road would not be overcharged in any way. The argument Senator Hogan put forward  seems to be a genuine one. I have no doubt he was right in what he said about the insurance companies reducing the commission and increasing the premiums and thereby making the broker an intermediary pay the cost of the increased premiums. That may be the case but I do not know if this legislation should cover that activity. In other words I want to hear the argument in favour of the consumer.
As the amendment stands at present I do not see a need for it. If there is something in this amendment which adds further to the protection of the person who is buying insurance, it should be spelled out for us. It seems unusual to ask the Minister to increase the commission. With regard to the party of the free market and the party of open competition, who are well represented here today by Senator Hogan, I find it extraordinary that he should attempt to propose that an increase in commission and an increase in prices would increase the competitiveness on the market. I am a very simple soul and, being a Kerryman, I need things spelled out for me in black and white and in simple terms.
Mr. J. O'Toole: If Senator Hogan were to say: “I think agents and intermediaries are getting a raw deal and the Minister should intervene to protect them from the big bad companies”, I would ask what their representative association were doing for them, or would they consider joining a good trade union like ASTMAS who might look after their interests and make sure they get adequate representation. This proposal undermines the position of the trade union movement and I have great difficulty with it.
Mr. Hogan: I bow to Senator O'Toole's ignorance on this amendment and I forgive him for his lack of knowledge of insurance intermediaries. Obviously when you are dealing with the INTO, that famous body of reputable teachers, you would have savings and  investments in a group scheme because you would be able to get the prescribed group rate from an insurance company and insurance intermediaries would not enter into their language. I am sure the Leas-Chathaoirleach will forgive me for those remarks.
Mr. Hogan: If the INTO can get the commission that is all the better because at will be of benefit to the organisation. I think you mentioned that as a free marketeer I should not be looking for an increase in the amount of commission that might be paid to an intermediary. I am trying to react to the words that are used in the section which says that if the Minister deems that the commissions paid to intermediaries are excessive he has the power——
Mr. Hogan: I will address the Chair but Senator O'Toole has been addressing me. The Minister will have power to reduce commission levels by using the word “excessive”, in other words if commission payments are excessive he has the power to reduce them. On the other side of the coin, if commission payments in relation to particular levels of business are insufficient rather than excessive. I think the Minister should equally have the power to increase them.
Insurance intermediaries are important to consumers from the point of having independent advice available on the various companies who will offer an insurance product on the market. In fairness there should be some recognition of that. Later on we will be trying to put limitations on who can be called an “agent” or “broker”. A broker can have as many insurance agencies as he wants under his agency portfolio and he must have more than five. If the consumer wants to have an independent and wide range of companies at his or her disposal in order to choose the cheapest premium with the best cover, the Minister of the day should have power to interfere in a company if proper financial recognition is not given to an intermediary who is doing a good job for the consumer in that regard. I do not think the Minister should need the power to reduce the commission levels if they are excessive. However, he may need the power if a building society's commission payments on household policies are excessive and if one level of commission is paid to intermediaries or insurance brokers and a different level of commission is paid to somebody else. That is what I would call excessive and it is not in the interests of the intermediary, the insurance industry or the consumer.
Mr. Hogan: I am letting the Minister use his discretion to either bring the top one down or the low one up. At least it will not be going in one direction so that the top one only is being brought down. That is the reason I put down in this amendment.
Mr. Hogan: I will conclude by appealing to the Minister to see the logic of my case. If he is looking for powers in one direction he should do so in both directions in order to give a balanced view of the overall situation. I would not like to see what happened in the United Kingdom happening here where brokers and intermediaries went out of business because of the Insurance Bill that was brought in that jurisdiction. If commission levels are to play a minor part in putting insurance intermediaries out of  business, I would be in favour of putting in an amendment which would give the Minister some power to levelling out the situation vis-à-vis insurance companies and insurance intermediaries.
Mr. Mulroy: I do not think it is the Minister's role under this Bill to dictate at what level intermediaries' commission should be paid because back in the early eighties insurance companies were paying over the odds to brokers and agents in competition for business and these excessive rates were paid at the expense of the policyholder.
I understand that Part III of this Bill was introduced in the Seanad in 1982 as a separate Bill but because the industry came to an agreement among themselves at that time the Bill was not proceeded with. I understand that earlier this year the old problem of excessive rates surfaced again but that following the threat of such legislation the industry came into line with a new inter-company agreement. The Insurance Industry Federation have a commission agreement with different companies and they should look after the minimum level of commission to be paid. I do not think it is the Minister's job to dictate what the minimum level should be. There are other agencies who can do that on behalf of the intermediaries and brokers. I welcome the section which will tackle excessive commissions.
Mr. S. Brennan: The reason the powers in Part III are being taken is to enable me to curb excessive commissions should the need arise and they are, in effect, maximum price control powers. On the non-life side, some brokers would argue, as has been argued here today, that commission levels are too low for certain classes and that they were reduced by insurers. Insurers, on the other hand, will point out to me that  these commissions are calculated on a percentage of gross premiums and that, generally speaking, over the last decade increases in liability and, in particular, motor rates have far outstripped the level of general inflation. That is the point they would make and that is why the Government are taking action now to reduce the cost of insurance to the general public.
As Senators will already be aware, the powers to control commission levels are reserved powers to be activated if self-regulation by the industry fails and consumer interests are eroded by excessive commission payments. My primary concern in all of this has to be for the consumer. We cannot go back to the old days of holiday in the sun in exotic locations at the expense of the consumer.
Mr. S. Brennan: I thought I would mention it on this section. I would expect all sectors of the industry to regulate their affairs in a reasonable manner. However, it is not the intention that the Minister should interfere with responsible market forces or the normal commercial interaction between intermediaries and insurance companies. For example, I will not act as a form of pay arbitrator for insurance companies and their intermediaries. This is a function of insurance company management, on the one hand, and of the intermediaries and their repreentative bodies on the other hand. I am sure the House appreciates that for these reasons I do not propose to take on board these amendments.
|Bohan, Edward Joseph.
Ó Conchubhair, Nioclás.
O'Toole, Martin J.
Mr. S. Brennan: The use of the words “by post” in this context limits the Minister to sending notices by post and notices not sent by post, for example, recorded delivery by hand, could therefore be deemed to be invalid. That is not what was intended so I am trying to correct that. The effect of the amendment will be that the Minister may use any method to send notices and he will not be tied to any one particular method. In reality, the Minister, as supervisory authority, would decide in particular circumstances on the most appropriate means of delivery of notices. This could include ordinary post or registered post, depending on the circumstances and the location of the addressee; delivery by hand with registered signatory of receipt, if required, and this could be required in certain circumstances; telex in the interests of speed, if that is appropriate and registered FAX transmission of documents if that is appropriate at the time. The important point here is that the correct method of communication will be determined having regard to individual circumstances at the time. The important thing is that there should be some flexibility and that the Minister should be free to determine the appropriate way to serve the documents. This is a sensible adjustment.
Mr. J. O'Toole: I welcome this amendment. The person responsible for this amendment showed remarkable foresight because it is at least a recognition that the technological age has arrived. Restricting the notice to being sent by post is very old fashioned.
I want to get clarification on two points. Did the Minister say that it was acceptable now to send notices by FAX? I think this should be so but he either deliberately or otherwise did not refer to the fact that they could be sent through, for instance, Eirpac or one of the computer mailing systems. I want to clarify whether it would be appropriate to use  those particular avenues of distribution as well. I believe that it should be and I am glad that it is not just a facility which allows courier companies to get in on the act but that it goes far wider and includes technological mail services.
Mr. Hogan: I welcome the Minister's amendment in relation to this matter because, as he will be aware, I proposed a number of amendments on Committee Stage. I thought the most appropriate way to deal with the handling of correspondence from the Minister to the policyholder would be through registered post. Perhaps the fact that he is now deleting “by post” is opening up the avenue whereby he will be in a position to send by registered post or by some other means as deemed suitable on the occasion. I would welcome it from the point of view that the Minister is not tying our hands by one method of transportation of material. It is essential to have good communications between the Minister and the policyholder.
Mr. S. Brennan: I hope these are fairly non-contentious amendments although  that may be presumptuous of me. The use of the phrase “in respect of work carried out” in the Bill has two disadvantages. First, it tends to imply that indemnity commissions or commissions paid to an insurance intermediary in advance of any work carried out are outside the scope of the section. This is certainly not the case. Secondly, if allowed to stand, insurance companies would have an unlimited period in which to settle commission accounts at the higher rate with intermediaries. So the deletion of the words eliminates the former disadvantage, while reducing the time allowed to insurance companies to settle such accounts with intermediaries to a more reasonable time of two months. The new paragraphs (b) and (c), which are contained in amendments Nos. 59 and 60 respectively, are proposed because they are couched in more readily comprehensive language than the existing text and they avoid the use of the phrases “rates of” and “in respect of work carried out” for reasons which I have already explained.
Mr. Hogan: The Minister is attempting to ensure that every payment or award paid to an insurance intermediary is regarded as commission, no matter what form it takes. I agree with the thinking behind this amendment to delete the words “in respect of work carried out”. I seek clarification in relation to amendment No. 60. It cuts across section 31 (2) of the original Bill. Should we be discussing that at the moment, or should we discuss it in the context of a later amendment, No. 65, as Senator Fallon and I have been anxious to have that subsection deleted? If so, I will have much more to say on amendment No. 60.
“(c) Where the Minister sends a notice under this subsection to the holder of an authorisation, he shall at the same time send a copy of the notice to all other holders of authorisations and a holder of an authorisation to whom such a copy is sent shall not pay, or cause to be paid on his behalf, after the date specified in the notice, commission payments at a level higher than specified in that behalf in the notice.”. NEW SECTIONS.
An Cathaoirleach: Amendments Nos. 63, 64 and 65.
Government amendment No. 63:
In page 18, before section 31, to insert a new section as follows:
.—Whenever the Minister considers it necessary in the public interest he may provide by order that the holder of an authorisation shall not—
(a) pay commission payments in the form of any benefit in kind or in the form of any loan of money made by the holder to an intermediary, or made on the holder's behalf by another person to an intermediary;
(b) subject to such exceptions and conditions as may be specified in the order, pay to, or credit to the account of, an insurance intermediary a commission payment in respect of a policy of insurance until the premium to which the commission payment relates is received by the holder or the intermediary on behalf of the holder, as the case may be.”
Mr. S. Brennan: This is a Government amendment to insert a new section.
An Cathaoirleach: If amendment No. 63 is accepted amendments Nos. 64 and 65 cannot be moved.
Mr. S. Brennan: Yes, because they deal with that matter. Whether they can be moved is a technical matter. The effect of the original text of this section originally was to prohibit all commission payments in the form of benefits in kind, for example, all non-cash payments, advance or indemnity commissions in the form of loans and to prohibit intermediary remitting of premium net of his commission to the insurer. The insurance industry has argued that normal arrangements between insurers and intermediaries, for  example, in regard to the supply of calendars, pens, business lunches, co-operation in the development of technology, computerisation matters and the like should not be unnecessarily hindered. They have also argued that an intermediary is entitled to receive his due commission when the work is done, that is, when the contract is concluded or renewed, and that deferred premium payment plans, deduction schemes and so on, where policyholders normally make payments on a deferred basis and which are designed to assist consumers were not catered for in the wording of the original section 31 of the published Bill. I know that some Senators repeated these points during the course of the debate on Second Stage.
Accordingly, this new subsection proposed by the Government makes it explicit that the powers being taken to control indemnity commissions and benefits in kind are reserve powers, to be activated only if consumer interests are threatened by excessive commission payments. We are not seeking to prescribe the form of bona fide commission payments, merely to have the power to control or prohibit abuses if these occur. In addition, the new powers will be flexible enough to allow the Minister to target abuses in specific classes and to grant exemptions in those classes where no abuse occurs. The intention, therefore, is not to interfere in the normal commercial freedoms and relationships between insurance companies and intermediaries unless commission levels or benefits rise to levels which threaten to destablise the market and devalue consumers' interests. I hope this objective is achieved by the amendment which I commend to the House.
I presume also that the new section 31, proposed on behalf of the Government, takes care of the concerns of Senators Hogan, Mulroy and Fallon, reflected in their amendments.
Mr. Hogan: I welcome this amendment and I acknowledge the fact that the Minister has eased a situation which would  have created difficulties for a number of Senators and for the consumer in relation to premium payments plans over a considerable length of time. The Minister acknowledged that premiums have increased dramatically recently and consumers or policyholders are finding it increasingly difficult to pay their premiums to the companies and their intermediaries in one lump sum. I am glad the Minister acknowledged that and decided to insert an amendment which will take due cognisance of that dilemma.
I am also glad that the Minister has taken the opportunity to outlaw benefits in kind and to frown upon, in legislation, the various practices and arrangements which have been entered into by insurance companies and some intermediaries in the form of loans or holidays and certain cash up-front in relation to policies. It was not in the best interest of the consumer that payments of this nature were given to certain intermediaries. It infringed on the best available product being given to the policyholder which was not in the interests of fairness or giving the best value for money to the policyholder or consumer. Outlawing that certainly has my full support. I welcome the fact that the industry has brought about self-regulation in recent times, particularly in the life area. This has been a major problem in the life assurance area but it has not been one in the non-life area. Inducements given in order to get an insurance company to do more business with certain intermediaries had begun to take very strong effect in recent times. The Bill is timely in so far as it eliminates that in this amendment.
I understand that the insurance federation made a submission to the Minister that they would like to see greater movement and technological innovation in relation to intermediaries in the form of computerisation. If you open the gate in allowing an exceptional case in relation to technology, you are opening the floodgates to other forms of benefit in kind which would not solve the problem the Minister is trying to alleviate in this amendment. I welcome the amendment  because it adequately addresses two important problems. I am glad that the deduction authorities and premium payment plans will not come under duress from the Minister in this amendment and that benefit in kind in all its respects and every reward and payment made wrongly to the intermediary, not made under the self-regulation agreement, to the detriment of the consumer, is outlawed under this amendment.
Mr. Fallon: I also welcome this amendment. It is common knowledge in the life insurance industry that many companies over the past few years were offering over-generous incentives such as holidays abroad. If this had continued on this level the customers' interests might well have been seriously threatened. For that reason I am glad the Minister has acted in this way. At the time the Minister of the day brought in the life companies and they, in turn, regulated themselves with new proposals which come into play some time in August. On the non-life side, on section 31 (2) of the original Bill, I could see very real problems with insurance brokers apart from the fact that we have, as has been referred to by Senator Hogan, the premium solvent schemes. It has been a long tradition that insurance brokers pay their accounts net. Brokers coult not understand the fact that this section could be in a Bill and I am pleased that the Minister has wisely decided to remove it.
If insurers were obliged to pay commission on a premium received basis it would cause many administrative and technical problems. That would also be the case for the insurance brokers and intermediaries generally who, clearly, over the years felt that commissions should be paid on the basis of a net account. Not alone would there be administrative and technical problems; it would be unworkable. We have no choice but to remove section 31 from the Bill.
Mr. Mulroy: I should like to welcome the amendment. The cost of insurance is increasingly more expensive and if this had been left in place it would have added  to the cost of insurance because it would have put the fair payments and premium payment plans in jeopardy. It would have also caused undue hardship to brokers because of a cash flow problem. This is a very welcome amendment and I am very pleased the Minister has introduced it.
Amendment agreed to.
Amendments Nos. 64 and 65 not moved.
Question, “That section 31 be deleted” put and agreed to.
Section 32 agreed to.
Government amendment No. 66:
In page 19, line 13, to delete “rates of”.
Amendment agreed to.
Government amendment No. 67:
In page 19, line 14, to delete “in respect of the work carried out”.
Amendment agreed to.
Question proposed: “That section 33, as amended, stand part of the Bill.”
Mr. Hogan: Section 33 refers to restrictions on advertising. Where the person does not appeal against a conviction, who will adjudicate on the appeal? Will the Minister expand on the various types of advertising he would frown upon in relation to this section?
Mr. S. Brennan: The court would decide on that. The purpose of this section is to make it an offence for an insurance company convicted under sections 30 or 31 of the Bill to publish, or to cause to be published, an advertisement in relation to its insurance business, unless it first reduces its commission rates to a level not higher than the relevant level specified in the notice from  the Minister to which the conviction related or unless it no longer breaches the requirements of section 31. This provision is confined to the insurance company only. It is not felt necessary to extend it to those cases where intermediaries may independently advertise the business of a particular company. It is considered that the provision in section 34, making it an offence for a broker to accept certain commission payments, is an adequate disincentive to brokers to continue to handle the business of an insurance company that is in contravention of the Act. We are very confined to the company and its advertising.
Question put and agreed to.
Government amendment No. 68:
In page 19, before section 34, to insert a new section as follows:
“.—(1) Subject to subsection (2), where—
(a) an insurance intermediary accepts a commission payment,
(i) from a person who has been sent a notice under section 30 or a copy of such a notice, or from a person acting on behalf of such a person, and
(ii) the payment is higher than the level specified in relation to such payments under the notice, and
(iii) the payment is made after the date specified in the notice, or
(b) an insurance intermediary accepts a commission payment contravening section 31,
the intermediary shall be guilty of an offence.
(2) In a prosecution for an offence under this section, it shall be a defence for the defendant to show that he did not know, and could not reasonably  be expected to have known, that the commission payment concerned was—
(a) higher than the level specified in relation to a payment of that kind in the notice concerned under section 30 and that, upon its becoming known to him, he returned the excess of the commission payment concerned to the person who made it, or
(b) in contravention of section 31 and that, upon its becoming known to him, he returned the commission payment concerned to the person who made it.”.
Mr. S. Brennan: This is a new section and its wording is more easily understood than the existing text. The only change of any substance occurs in subsection (2). The original text required the total commission payment in contravention of section 30 to be returned to the person who made it. The new text requires that only the part of the commission payment which was in excess of that allowed under section 30 is to be returned as soon as the intermediary becomes aware of the fact that it is greater than permitted. That is a fairer and more reasonable approach to it, that the excess is returned rather than the premium.
Amendment agreed to.
Question: “That section 34 be deleted” put and agreed to.
Government amendment No. 69:
In page 20, line 2, to delete “rates of”.
Amendment agreed to.
Government amendment No. 70:
In page 20, lines 2 and 3, to delete “in respect of work carried out after a date”.
Amendment agreed to.
 Government amendment No. 71:
In page 20, lines 12 and 13, to delete “which was so effected after the date aforesaid”.
Amendment agreed to.
Government amendment No. 72:
In page 20, line 15, to delete “at a rate”.
Amendment agreed to.
Question proposed: “That section 35, as amended, stand part of the Bill”.
Mr. Hogan: On to section 35 we are talking about certain policies of life assurance being voidable. The Minister will be aware of the cooling off period introduced recently as part of the self-regulation process in the life assurance area. I welcome this in relation to the life assurance companies because it is giving what Senator O'Toole and other Members advocate — a period of time in which a policyholder can decide to go ahead once and for all with the particular policy or to throw out the contract entered into through the proposal form. Is the Minister aware if the cooling off periods and self-regulation are working satisfactorily? If not, what steps does he intend to take to ensure that the process is monitored properly and will continue to work satisfactorily?
Mr. S. Brennan: The only source of information I have in that regard is the complaints section of my Department and the information from that section is that the cooling off structure seems to be working satisfactorily. We do not have any undue complaints. In fact, we have hardly any complaints about the working of the system so it must be working well.
Mr. Hogan: I am glad the Minister said that because I thought it was an excellent initiative taken by the life offices in view of the fact that when a person signed a proposal form he or she felt they were compelled to go ahead with it. They can  now avail of a cooling off period and as many people as possible should be aware of it. Maybe the Department and the life companies could assist the process through the letter they send when the proposal form is returned to the company. It is a very fair and equitable way of dealing with the information sent from the intermediary agent to the proposer of the policy.
I am delighted at the concept of a cooling off period and I am glad the Minister has justified my delight by saying that there are no complaints of any particular significance in his Department in relation to policyholders because there are a number of companies — Senator Fallon referred to this on Second Stage — in which unqualified people are going around the country signing people up for policies. Unsuspecting individuals are not aware of what they are signing, they are given a line of argument in relation to the sale of the policy. The cooling off period and the letter they will receive from the company will be a second opportunity for the proposed policy holder to have another look at it and to rethink what they signed in the first place. That is a very worthwhile initiative and I am glad it is working well.
Question put and agreed to.
Government amendment No. 73:
In page 20, line 25, to delete “by post”.
Amendment agreed to.
Government amendment No. 74:
In page 20, line 29, to delete “rates of”.
Amendment agreed to.
Section 36, as amended, agreed to.
 NEW SECTION.
An Cathaoirleach: Amendments Nos. 75, 78, 79 are related and amendments Nos. 76, 77 are alternatives to amendment No. 75 and may be discussed together.
Government amendment No. 75:
In page 20, before section 37, to insert in Part IV a new section as follows:
.—(1) A person shall not act as, or hold himself out to be an insurance broker unless—
(a) he is a member of a representative body of insurance brokers which requires compliance with the provisions of this Act as a condition of membership, and that body is recognised as such by the Minister, and he otherwise complies with the provisions of this Act, or, not being a member of a recognised representative body, he complies with the provisions of this Act, and
(b) he is in a position—
(i) in the case of non-life insurance, to arrange insurance contracts on behalf of his clients with at least five undertakings, or
(ii) in the case of life insurance, to arrange insurance contracts on behalf of his clients with at least five undertakings.
(2) A person shall not act as or hold himself out to be an insurance broker unless he holds an appointment in writing from each undertaking for which he is an intermediary.”.
Mr. S. Brennan: I start by focusing Senators' minds on the fact that we are now turning to Part IV of the Bill which deals with the regulation of insurance intermediaries. Before dealing with the specific amendments to Part IV I would like to make a few general remarks which I hope will explain the approach which is now being adopted.
An Cathaoirleach: I want to be helpful  at this point. We are going into a very important Part of the Bill and we have only five minutes to go. Could I have the opinion of the House as to what we should do now?
Mr. Fallon: Because we are moving to such an important Part of the Bill and as we are adjourning this Stage at 4 o'clock it might be appropriate to report progress now rather than at 4 p.m.
An Cathaoirleach: Is that agreed?
Progress reported; Committee to sit again.
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