1.The Joint Committee has completed its consideration of the following:-
Proposal for a Third Council Directive on the coordination of laws, regulations and administrative provisions relating to direct insurance other than life assurance and amending Directives 73/239/EEC and 88/357/EEC.
Consideration by Sub-Committee
2.A detailed examination of the draft Directive was carried out for the Joint Committee by its Sub-Committee on Statutory Instruments and Legal Affairs under the Chairmanship of Senator Thomas Hussey. The Joint Committee gratefully acknowledges its indebtedness to Senator Hussey and his colleagues for their painstaking work.
3.The Joint Committee wishes to express its sincere thanks to the Irish Insurance Federation (IIF) and the Departments of Industry and Commerce and Health for the detailed briefing it received which proved invaluable in its deliberations.In particular, it wishes to express its appreciation of the assistance received from Mr. Mike Kemp of the IIF, Ms. Ellen MacCafferty and Mr. Tommy Murray of the Department of Industry and Commerce and Mr. Paddy Byrne of the Department of Health who attended meetings of Senator Hussey’s Sub-Committee and gave it unstintingly the benefit of their expertise.
Background to Proposal
4.The proposal will complete the internal market in the non-life insurance sector. An insurance company with a Head Office licence in any Member State will be able to operate throughout the Community through branch establishment or through cross-border provision of services on the basis of that single licence.
5.Under present Community legislation supervisory control is exercised by Member States where branches are established. In the case of cross-border mass (small) risks services business, supervisory control is exercised by the Member State into which the insurance services are sold. For large risks business, the Member State out of which the insurer operates has overall supervisory control. Under the present proposal overall supervisory control will be exercised by the Member State where the Head Office of the insurance company is located (home country).
6.The present proposal will supplant the second Non-Life Insurance Directive which was reported on by the Joint Committee’s predecessor (1) and implemented by the EC (Non-Life Insurance) Regulations, 1991 (S.I. No. 142 of 1991), and which represents a partial implementation of the single licence concept. It is now intended to complete the process to provide for single licence home country control and harmonisation of measures to safeguard the consumer.
If the Third Directive is adopted it will provide a single market in insurance. European citizens will be able to shop around for any kind of non-life insurance.
7.The Second Directive only allowed choice of law of any country, within or outside the Community, in respect of marine, aviation and transit risks: it is now proposed to extend this facility to all large risks.
B. Consideration of proposal by Joint Committee
8.The Joint Committee sees the proposal as a significant step in the programme to complete the Single Market. The concept of single licence subject to home country control is already applicable in relation to banking and securities.
9.The Joint Committee notes the general welcome given by the Department of Industry and Commerce to the proposal and the endorsement of the IIF of the concept of single licensing. However, as over 80% of the non-life insurance sector is foreign-owned of which 60% is on a branch basis, the new proposal would entail a change of administrative control over a substantial sector of the market.
Because of the freedom of capital movements within the Community, insurance companies will have greater freedom to invest their assets to best advantage in the Community.
10.The concept of home country control will, in all probability, reduce the statistical basis for supervisory authorities and the Joint Committee shares the IIF’s concern in this matter.
11.The Joint Committee is concerned about the implications of the draft Directive for the health services in Ireland. Eligibility for health services in Ireland is governed by the general principle of ability to pay. Public and private health care in Ireland exist side by side but are interdependent as well as being complementary to one another. It is essential to the successful operation of our health service that the existing balance between public and private health care be maintained. Private health care insurance in Ireland, to which around one-third of the population subscribe, is provided, almost exclusively, by the Voluntary Health Insurance Board (VHI).
12.The VHI practices the principle of Community rating in all its insurance schemes. Under Community rating there is a standard rate of premium irrespective of age or other risk factors. The Joint Committee is anxious that this principle be upheld and that normal market forces should not be the determining factor governing service levels.
In the open and unrestricted type of market that would emerge under the provisions of the Third Directive, as drafted, the introduction of risk-rated health insurance would almost certainly spell the end for the type of market that operates here at present.
13.The Joint Committee has, however, been assured by the Department of Health that the Irish position in relation to health care services has been brought to the attention of the Council and that every effort is being made to safeguard the principle of community rating.
14.The Joint Committee also directed its attention to the question of motor insurance cover at reasonable cost in this country, particularly for young drivers. The availability of such cover is very important for young people seeking employment. Unfortunately, as the bulk of companies writing motor insurance in Ireland are foreign owned, and on the basis of underwriting losses sustained by the industry as a whole, the Joint Committee is not hopeful of any significant reduction in the cost of motor insurance in the near future. Nevertheless, the Joint Committee feels that the introduction of compulsory driving tuition and road-worthiness checks for private vehicles, together with a more prudent approach by insurance companies to claim settlements, would impact favourably on the cost of motor insurance, at least through avoiding any further increases.
15.The Joint Committee, in the course of its consideration, laid particular emphasis on the need to safeguard consumers and redress their complaints. It is satisfied, however, that if there is adequate co-ordination of technical reserves, rules governing assets and applicable law, there is a strong basis of consumer protection to allow for the abolition of prior approval of policy conditions and tariffs. Consumer organisations and qualified insurance intermediaries should also ensure the quality of the product.
16.The Joint Committee in this connection commends the role of the IIF in its endeavour to establish an Ombudsman for the insurance industry. This authority will have representation from consumer bodies on it and the IIF hopes it will be in place in 1992. Accordingly, another avenue of redress for insurance complainants is in prospect.
17.The Joint Committee is pleased to note the advent of the completion of the Single Market in the non-life insurance area. It would welcome a similar rate of progress in other sectors concerned with the achievement of the unified market.
18.In the absence of harmonisation of policy conditions the host country rules will need to be judged in the light of the jurisprudence of the Court of Justice, eg no discrimination between domestic and foreign insurance companies. Fiscal harmonisation will be necessary to ensure competition.
19.Redress for consumer complaints must be carefully considered.
The Joint Committee hopes that the remit of the proposed insurance Ombudsman will be wide-ranging and effective throughout the insurance industry but, notwithstanding, would like to see legislative provision for consumer protection incorporated in the draft Directive.
20.The Joint Committee notes that since this report was drafted Internal Market Ministers, on 19 December, 1991, reached agreement on the third non-life insurance directive. The directive will come into force on July 1, 1994 although implementation of some clauses has been deferred until the end of 1996 for Spain and the end of 1998 for Greece and Portugal.
Peter Barry T.D.,
Chairman of the Joint Committee
4 March 1992
(1) Report No. 12 of the Fifth Joint Committee (26.04.89)