Four months ago evidence emerged that the State's main insurance company, Irish Life, had engaged in a multi-million-pound rip-off of customers.
At the time Irish Life refused to answer specific questions about what had gone on over a period of at least 10 years. Recently it has emerged that the company is engaged in negotiations with the Irish Permanent Building Society on a merger, without any of the serious questions about its financial integrity having been answered.
An opportunity arose for these questions to be answered on October 13th, when two senior executives of Irish Life, David Went, the chief executive, and Denis Casey, the chief operating officer of the Irish division, gave evidence to the Oireachtas Committee on Enterprise and Small Business.
The evidence of a wide-scale rip-off of customers was as follows: an internal memorandum, dated March 1992, from the regional manager-North, Mr Gerry Rooney, acknowledged the prevalence of a practice known as "churning", whereby customers are persuaded to cash in an existing policy and open a new one.
The effect of this is to divert the premium for the first year of the new policy to the bonuses for the sales and management staff. The memorandum of March 1992 acknowledged that churning took place for the purposes of generating additional commission. It stated that such practices were "not in the best interests of the client".
Nothing much seems to have been done about this at the time because, two years later, there was another internal memorandum drawing attention to a variation of the practice; the reduction of premiums on an existing policy, accompanied by the opening of a new policy. This memorandum was written by Mr Willie Holmes, the general manager-field. He wrote that such a practice "can really only be justified in exceptional circumstances and in most cases, therefore, the inevitable conclusion is that the change is for commission gain only".
That memorandum of April 1994 referred to an increase in the practice of churning. There are two further internal memorandums available, both dated June 10th, 1994, and both from Mr Gerry Hassett of the marketing section to Mr Willie Holmes. One of these states: "I got the actuaries to take 10 `real' cases from the files you have been referring to area managers. In every case we examined the change as not in the best interests of the customer. They lost out in money terms at every date and at all growth rates we examined."
The other memorandum of June 10th, 1994, from Mr Hassett to Mr Holmes, referred to 644 instances where a policy was surrendered in favour of a new policy. Mr Hassett said that in every one of these cases, "the customer is much worse off".
Thus a practice which had been identified in March 1992 as against the interests of its customers was continuing apace more than two years later.
Indeed, a further memorandum in July 1994 from Mr Holmes acknowledges that the practice was still going on and that the cases "in the pipeline" were to be processed.
In 1994 the average premium was £363 a month. Thus, in the first six months of that year, the sales and management staff of Irish Life had generated additional commission for themselves of £3,486,864 from a practice acknowledged by Irish Life itself as leaving "the customer much worse off". Given that the practice had gone on from 1983, it is obvious that customers of Irish Life were ripped off to the tune of millions of pounds, for the benefit of the sales and management staff.
One would have thought that in the face of this evidence Mr Went and Mr Casey of Irish Life would have been on a sticky wicket before the Oireachtas Committee on Enterprise and Small Business. Not a bit of it.
Mr Went opened his evidence with an identification of "the absolute importance of trust between companies involved in the financial services industry and their customers". Self-regulation, he thought, was no longer enough, there should be "a system of independent statutory regulation".
Mr Casey followed on by saying: "We operate our business to the highest possible standards" before turning to the allegations about churning. He said it was Irish Life itself which identified a problem in this area in 1994 and that it was now engaged in an extensive investigation of what had happened, in conjunction with its auditors and officials of the Department of Enterprise and Employment.
He said: "As has been our consistent practice, if that review work identifies any customers of Irish Life who have been disadvantaged as a result of the advice they received from our company, they will be recompensed."
That initial presentation was followed by a chaotic question-and-answer session. Four Oireachtas members asked a total of 30 questions be fore Messrs Went and Casey were invited to reply. Not one of the questions referred to the internal Irish Life memorandums which had come into the public domain. One of the questioners refer red to an affidavit sworn by a former employee, which detailed instances of churning.
Mr Went was dismissive of the affidavit. Explaining why an investigation into what was identified as a problem in 1994 was occurring only now, he said that as he had only recently joined the company, he wanted to be satisfied personally that the matter was thoroughly investigated and that any customer disadvantaged was compensated. He said the 1994 investigation had shown that only 100 customers (not 644) had been disadvantaged and that Irish Life had been in communication with these and had by then compensated 27.
Before Irish Life goes any further in its proposed merger with Irish Permanent, perhaps the shareholders of both companies and the policy-holders of Irish Life, along with the Irish public, should be given answers to a few obvious questions:
How was it that a practice which had been identified certainly by March 1992 as being against the interests of its customers was persisted in up to June 1994, with the full knowledge of the senior management of Irish Life?
Given that by June 1994 there had been a decision to discontinue this practice, why were churnings in the pipelines allowed to be processed?
How could it be that only 100 policy-holders were churned in the first six months of 1994 when it had been clearly established in June 1994 that 80 per cent of 805 cases (i.e. 644) involved churnings?
What was the true scale of the churning from 1983 until 1994? How many customers were churned? What was the amount of commission earned by sales and management staff as a result of that churning?
If it is the case that Irish Life has always been concerned to compensate customers disadvantaged by churning, how is it that not a single customer specifically identified in 1994 as having been disadvantaged was compensated or even contacted four years later?