Eoghan Murphy (Dublin Bay South, Fine Gael) | Oireachtas source

I welcome the opportunity to address the House on the Consumer Insurance Contracts Bill 2017 which was introduced by Deputy Pearse Doherty in the Dáil on 19 January. I will begin by expressing my support in principle for the objectives of the Bill which is aimed at reforming and modernising the law on consumer insurance contracts. Like cré na hÉireann, we are creating common ground.

As Deputy Pearse Doherty outlined, the Bill is based on the Law Reform Commission's 2015 report on consumer insurance contracts. The rationale for the Law Reform Commission's review was that insurance contract law principles and rules had been developed in the 18th and 19th centuries when insurance contracts involved wealthy landowners and ship owners. There was a need to review these principles and rules to determine their appropriateness in the 21st century. Of particular concern to the Law Reform Commission is the current state of the bargaining powers of insurers and consumers. Most insurance contracts are concluded between large corporate bodies, with vast resources and expertise, and consumers with limited financial, technical and other resources. The Law Reform Commission concluded that while recent EU and domestic legislation on the regulation of insurance contracts had benefited ordinary people and small businesses in Ireland, there was a need for further reform and that the relevant provisions should be consolidated into a single statutory framework. It undertook extensive research which culminated in a report with 105 recommendations, including the abolition of some laws and their replacement with specific legislative measures. Draft legislation to give effect to these recommendations was included in the report and provided the basis for this Private Members' Bill.

The Government agrees that the Bill is relevant to the lives of virtually all citizens. A contract of insurance is something that most, if not all, of us will enter in to at some stage of our lives. This is particularly clear in the light of the wide range of areas of insurance cover, including motor, health, property and business insurance. The research of the Law Reform Commission which plays an important role in Ireland’s legal landscape reflects this wide scope. I take the opportunity to thank the commission for its work and acknowledge the high quality report it has produced in this complex area. I understand the report is the result of a number of years of work and follows a consultation process involving the consumer protection side of the Central Bank of Ireland, the Financial Services Ombudsman and the Department of Jobs, Enterprise and Innovation as the Department responsible for consumer protection matters. The Department of Finance did not participate in this process and, therefore, had no opportunity to work with the Law Reform Commission while it was completing its report. Since the publication of the report, the Department of Finance's priority focus in the insurance area has been on a range of issues such as a review of the insurance compensation fund legislation, flood cover and the cost of insurance project. While some consideration has been given to the Law Reform Commission's report, up to now it has not been a matter of priority. Nevertheless, the Government supports what the Bill is trying to achieve and we intend to engage constructively in advance of Committee Stage.

The wide-ranging scope of the Bill covers many issues which the Government acknowledges have caused an immense amount of frustration for many ordinary policy holders, including small businesses, when dealing with insurance companies. One of the key issues addressed by the Law Reform Commission which is recognised in the Bill is the imposition by the current law of onerous requirements on the consumer to disclose information on which a hypothetical prudent insurer might rely when deciding whether to insure him or her. By definition, this requires the consumer to try to anticipate what the insurance company needs to know, even if he or she is unsure what information is relevant. Consequently, it puts the insurer in a position where it can refuse a claim if it has not received a full and complete disclosure, even in circumstances in which such information, if it had been disclosed, would have had minimal or no impact on the decision to provide cover in the first place. The Bill proposes to replace the current pre-contractual duty of disclosure imposed on consumers with a statutory duty to answer carefully and honestly specific questions posed by an insurer that identify the material risks and the relevant information relied on by the insurer. Directly related to this is a provision that proposes to provide for proportionate remedies for innocent or negligent mistakes by consumers, while continuing to allow insurers to be able to repudiate liability completely in cases of fraud.

Other provisions in the Bill include its application to insurance contracts between insurance companies and individual consumers or SMEs with a turnover of less than €3 million. The concept of insurance warranties is being replaced with statutory provisions allowing insurers to include provisions that precisely identify or define the risk insured but which also protect consumers from unfair and unjust outcomes. As Deputy Pearse Doherty mentioned, in the example given by the Law Reform Commission a consumer wrongly warranted that a particular type of burglar alarm had been installed - this is referred to as the "basis of the contract" - and the premises subsequently burned down as a result of faulty electrical wiring. In such a case, an insurer would probably be able to repudiate liability under the policy, even though there was no connection between the breach. The requirement for a consumer to have an insurable interest in the risk insured is being abolished and replaced with legislation that requires a consumer to prove actual loss when making a claim and also applies the principle of indemnity to ensure a policyholder cannot make a profit on any claim.

The Bill also permits third parties intended to benefit under an insurance contract to make a direct claim against the insurer. It reforms and modifies the current laws governing subrogation in order to avoid unintended consequences for family and employer-employee relationships. Subrogation is the means by which an insurer can step into the shoes of a policyholder after it has paid out on a claim in order to take action to recover the compensation from the person responsible for the claim being paid out in the first place.

The Bill would replace the post-contractual duty of good faith with specific statutory duties, including a duty on consumers to pay premiums within a reasonable period and a duty on insurers to handle claims and complaints promptly and fairly. It would also adapt the existing legislation on unfair terms for insurance contracts and include the consolidation and reform of existing legislation to ensure policyholders receive clearly written information on the essential terms of the insurance contract, including policy documents.

As indicated at the outset, the Government is supportive in principle of the Bill and willing to engage constructively. As part of this process, however, we must be able to develop a better understanding of its potential impact on consumers and insurers. The one certainty about this Bill is that it is legally complex and cuts across a number of fundamental and well-established legal principles such as subrogation, for example. We, therefore, need the time to closely review it in order to ensure that there is no unnecessary replication of existing provisions and no unintended consequences arising from its implementation. The type of elements we will have to consider include what elements of the Bill are currently catered for in the Central Bank’s consumer protection code, which is an important tool in the protection of consumers and needs to be considered in full, and any legislative developments since the publication of the Law Reform Commission’s report, which will require an analysis of whether any the provisions of the Bill are already on the Statute Book. If they are, it would be superfluous to address them once again through legislative means.

We must consider whether any provisions in the Bill conflict with current legislation, as appropriate amending legislation would be required in that case. For example, there may be some repetition between the Bill and SI 74 of 2007, (Non-Life Insurance (Provision of Information) (Renewal of Policy of Insurance) Regulations 2007. We must consider whether any provisions are likely to add unnecessary legal complexity and may result in higher litigation costs, as well as the work of the cost of insurance working group. There is potential for the recommendations in the report of the working group to overlap and if this is the case, the work will need to be streamlined to avoid duplication or conflict. For example, the working group report contains recommendations on providing additional information on premium breakdowns to consumers and an extension of the notification period for renewals.

We will also examine developments at European Union level since the Law Reform Commission concluded the 2015 report. For example, the Insurance Distribution Directive was agreed in 2016. This directive will replace the insurance mediation directive 2002/92/EC, which was transposed by the European Communities (Insurance Mediation) Regulations 2005. It applies to the entire insurance distribution chain, which includes both undertakings and intermediaries, with intermediaries being distributors who are not reinsurance undertakings selling directly. The main aim of the directive is to facilitate market integration by the enhancement of retail insurance regulation and increasing the level of policyholder protection. It will also seek to identify and mitigate conflicts of interest, in particular in the area of commissions, and strengthen administrative sanctions. The Department of Finance has commenced its transposition work, which is required to be done by February 2018, with some transitional provisions applying until February 2019.

Several Departments and agencies will need to be involved with this process. For example, while the Department of Finance is responsible for insurance regulation, it will be necessary to engage with the Department of Jobs, Enterprise and Innovation to gain its perspective on consumer protection matters. Engagement will almost certainly be required with the Department of Justice and Equality, which I understand has responsibility for general contract law-related matters in order to ensure there are no unintended consequences on the broader contract law area. In addition, the Central Bank will play a central role given its expertise in the area. The Financial Services Ombudsman Bureau must also be consulted.

It should be noted that the Central Bank has provided some high level views on the Law Reform Commission’s report in which it expressed broad support for the recommendations in the report. However, it has raised concerns that some elements of the recommendations may prove legally difficult to implement and may result in increased litigation and costs. Thus, given the nature of the reforms being proposed, they need to be given proper consideration and analysis in order to ensure that we get the legislation right. The Government supports the Bill in principle but due to its complex legal and wide-ranging nature, along with the breadth of its impact, an in-depth review of the Bill will be necessary. This will take a certain amount of time and I would be grateful, therefore, if the Deputy could take this into account when thinking about the scheduling of the Bill for Committee Stage. It should also be noted that the Government is likely to submit substantive amendments on Committee Stage.

See this speech in context