Second Stage Speech
Consumer Insurance Contracts Bill 2017 (PMB)
I welcome the opportunity to address Dáil Éireann today on the Consumer Insurance Contracts Bill 2017, which was introduced by Deputy Pearse Doherty on 19 January at First Stage.
At the outset, I would like to express my support in principle for the objectives of this Bill, which is aimed at reforming and modernising the law of consumer insurance contracts.
As outlined by Deputy Doherty at First Stage, the Bill is based on the 2015 Report of the Law Reform Commission on Consumer Insurance Contracts. The rationale for this review by the Law Reform Commission was that insurance contract law principles and rules were developed in the 18th and 19th centuries when insurance contracts involved wealthy landowners and ship-owners. There was therefore a need to review them to determine their appropriateness for the 21st century. Of particular concern to the Law Reform Commission is the current state of the bargaining powers of insurers and consumers, when most insurance contracts are concluded between large corporate bodies with vast resources and expertise versus consumers with limited financial, technical and other resources.
The Commission concluded that, while recent EU and domestic legislation on the regulation of insurance contracts has benefited ordinary people and small businesses in Ireland, there is a need for further reform and that the relevant provisions should also be consolidated into a single statutory framework. The Law Reform Commission 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 put those recommendations into effect was included in the Report and has provided the basis for this Private Members Bill. The Government agrees that this Bill is very relevant to the lives of virtually all citizens as 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 when you consider the wide range of areas that insurance covers e.g. motor, health, property or business. The research of the Law Reform reflects this wide scope.
The Law Reform Commission plays a very important role in Ireland’s legal landscape, and I would like to take this opportunity to thank them for their work and acknowledge the high quality report they have produced on this complex area. It is my understanding that the Report is the result of a number of years of work, with 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 they were completing their Report.
Since the publication of the Law Reform Commission 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, and while some consideration has been given to this Report, it had not to date been a matter of priority. Nevertheless, the Government is supportive of what the Bill is trying to achieve and we intend to engage constructively in advance of Committee Stage.
Scope of Bill
The scope of the Bill is wide ranging and covers many issues which the Government acknowledges have caused an immense amount of frustration for many ordinary policyholders including small businesses when dealing with insurance companies.
One of the key issues which the Law Reform Commission addresses and which is recognised in this Bill is that the current law imposes an onerous requirement on a consumer to disclose information that a hypothetical “prudent insurer” might rely on in deciding whether to insure the consumer . This by definition requires the consumer to try and anticipate what the insurance company needs to know, even where they are not sure about what information is relevant. Consequently, it puts the insurer in a position to refuse a claim when it has not received a full and complete disclosure, even in a situation where if this information had been disclosed, it would have had minimal or no impact on the decision to provide cover in the first place. Consequently, 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 actually relied on by the insurer. Directly related to this is a provision which proposes to provide for proportionate remedies for innocent or negligent mistakes by a consumer, but continue 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 €3million
- the replacement of the concept of insurance warranties 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. The Law Reform Commission gives an example of a consumer wrongly “warranting” that a particular type of burglar alarm has been installed (or states will be the “basis of the contract”) and the premises subsequently burns down as a result of faulty electrical wiring. In such a case the insurer will be probably be abler to repudiate liability under the policy even though there has been no connection between the breach
- the abolition of the requirement that a consumer must have an "insurable interest" in the risk insured to be replaced with legislation that (a) requires a consumer, when making a claim, to prove actual loss and (b) applies the principle of indemnity (that is, that a policyholder cannot make a profit on any claim).
- permitting third parties intended to benefit under an insurance contract to make a direct claim against the insurer.
- reforming and modifying 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 its policyholder after it has paid out 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 replacement of 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.
- adapting the existing legislation on unfair terms for insurance contracts and
- the consolidation and reform existing legislation to ensure that policyholders receive clearly written information on the essential terms of the insurance contract, including policy documents.
Potential impact of Bill
As indicated at the outset, the Government is supportive in principle of the Bill, and is willing to engage constructively. As part of this process, however we need to 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, for instance, subrogation. 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 things we will have to consider include
- what elements of the Bill are currently catered for in the Central Bank’s Consumer Protection Code. The Code is an important tool in the protection of consumers and needs to be considered in full.
- any legislative developments since the publication of the Law Reform Commission’s Report. This will require an analysis of whether any the provisions of the Bill are already on the statute book. If they are, then it would be superfluous to address them once again through legislative means.
- any provisions in the Bill which conflict with current legislation. 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.
- Any provisions which are likely to add unnecessary legal complexity and which may result in higher litigation costs
- the work of the Cost of Insurance Working Group. There is potential for the recommendations in the Report of the Working Group to overlap. 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 in relation to providing additional information on premium breakdowns to consumers and an extension of the notification period for renewals.
- developments at EU level, since the Law Reform Commission concluded their Report in 2015, e.g. 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 (intermediaries being distributors who are not (re)insurance 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.
There are several Government Departments and Agencies which will need to be involved in 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 their perspective on consumer protection matters. Engagement will almost certainly be required with the Department of Justice and Equality who I understand has responsibility for general contract law related matters in order to ensure that there are no unintended consequences on the broader contract law area. In addition, the Central Bank will play a central role given their expertise in the area. The Financial Services Ombudsman will also have to 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 they express their broad support for the recommendations in the Report. However, they have 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, I believe that they need to be given proper consideration and analysis in order to ensure that we get the legislation right.
In conclusion, the Government supports the Bill in principle. However due to its complex legal nature, its wide ranging nature, and the breadth of its impact, I believe an in-depth review of the Bill will be necessary. This will take a certain amount of time, and I would therefore be grateful 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 it is likely that the Government is likely to submit substantive amendments at Committee Stage.