Scandals in the insurance sector disrupting plans of supervisors

Scandals in the insurance industry are causing "serious disruption" to the plans of the Department of Enterprise, Trade and Employment's insurance division, which supervises the sector.

The Department's investigations of National Irish Bank's sale of offshore insurance products, and its inquiry into the allegations of "churning" which have been made in relation to Irish Life, have put a strain on its ability to achieve its objectives.

According to the Department's management information report for the end of June, "scarce resources have been diverted from core supervisory/regulatory areas within the division as a whole which will entail serious disruption to the divisional 18-month Business Plan."

The report, a copy of which was released following a Freedom of Information request, says the Department's management committee should be aware that the insurance investigations are carried out by existing officers in the division, taking them away from other work the division had planned to achieve.

The Minister of State, Mr Noel Treacy, who has responsibility for the insurance sector, appointed Mr Martin Cosgrove to inquire into the sale of offshore bonds by NIB, following an RTE report alleging that the bonds were being used by people wishing to avoid paying tax.

When Mr Cosgrove produced an interim report to the Department in June, the Tanaiste, Ms Harney, successfully sought the appointment of two High Court inspectors to investigate the issue.

Mr Cosgrove's investigation is suspended but he is providing whatever assistance necessary to the inspectors, according to the Department's management report.

Mr Treacy also instigated an investigation into the allegations of "churning" and the mis-selling of life insurance policies by Irish Life.

"Churning" is the persuading of customers to cash existing policies and open new ones, for the benefit of sales staff rather than the customers.

The Minister has written to all life assurers and representatives bodies regarding the matter. Officials are also examining relevant documentation at the Irish Life head offices.

One issue currently being worked on by the insurance division is the drafting of the Insurance Bill 1998, which will transfer regulatory responsibility for insurance intermediaries to the Central Bank.

The Bill was, in part, prompted by the scandal caused by the disappearance of the broker, Mr Tony Taylor.

The division is also working on regulations on "guidance notes" for life assurance in relation to the disclosure of insurance commission and other sales remuneration. These would mean that commission payments, deductions and the surrender value of life assurance policies, would be disclosed in an understandable form for consumers.

Mr John Corcoran, head of the Department's insurance and company law division, told the Oireachtas Joint Committee on Enterprise and Small Business in July that the new regulations will make it possible to prosecute people who deliberately mis-sell insurance policies. They would help to eliminate the practice of "churning", he said.