Report on churning at Irish Life simply will not do

One of Mary Harney's few remaining claims to political relevance is that as Tanaiste and Minister for Enterprise and Employment she will fearlessly uncover wrongdoing in public life and seek to hold accountable those responsible. That claim has been severely dented by the report of her Department's inquiry into allegations of serious financial impropriety on the part of Irish Life, while it was wholly owned by the State in and before 1994.

The report's defects are largely attributable to Ms Harney because the form of the inquiry was inadequate. This seems to have been in part due to the failure to institute the investigation under Section 59 of the Insurance Act 1989, which would have meant the appointment of an authorised officer with wide-ranging powers.

Instead, a Department official, without the powers of an authorised officer, undertook the investigation.

The inquiry arose from the disclosure last July of internal Irish Life documents from 1992 to 1994 and statements made by former Irish Life sales people, who alleged there had been widespread "mis-selling" of insurance policies from the mid-1980s.

Briefly, what was disclosed last July was the following: an internal memorandum of March 1992 disclosed that "over the past number of years churning" was practised.

This involved cashing in existing policies and replacing them with new ones, a practice that deprived the customer of virtually the entire benefit of the first year's premium, which was passed on to the sales and management staff of Irish Life in the form of commission.

Eddie Hobbs, of the Consumer Association of Ireland, said: "Churning is theft, plain and simple."

One would have expected Irish Life senior management to ensure the practice was stopped there and then but it is evident from another memorandum of April 1994 that if anything it had intensified.

This disclosed that what was going on was invariably for "commission gain only". But even then it did not stop.

On June 10th, 1994 another internal memorandum disclosed that in the first six months of 1994 there had been "805 cases where a policy had been surrendered in favour of a new policy - (in 80 per cent of such cases) the customer is much worse off".

A further internal memorandum of June 20th, 1994 refers to a technical analysis undertaken by Irish Life actuaries of six cases chosen at random. It states: "In every case examined the change (from one policy to another) was not in the best interest of the customer."

And there is a further memorandum of July 15th, 1994 which states that while "churning" had to stop thereafter, churned policies "in the pipeline" would be processed.

Irish Life's senior management repeatedly refused to answer specific questions arising from these memorandums. Instead, it issued generalised statements that did little to clarify the situation. It stated that Irish Life never tolerated the practice of churning (it clearly did so, when it agreed to process the churned policies in the pipeline in July 1994). It said that whenever a customer was found to have been disadvantaged compensation was always paid (this was untrue - of the six customers specifically identified in June 1994 as having been disadvantaged, at least five were never contacted or compensated).

It said sales executives involved in churning were disciplined and several were dismissed - as far as can be ascertained no sales executive was dismissed solely for churning.

A former Irish Life salesman swore an affidavit last June in which he gave graphic detail of churning in Irish Life. He said that when he joined Irish Life his branch manager and the area development manager went through the list of existing policy-holders to identify suitable candidates.

He said the stated goal was to churn as many polices as possible and poor people were often targeted for they would welcome the lump sum obtained when the first policy was cashed in. In addition to churning, he said straightforward fraud was engaged in by Irish Life sales executives, who forged the signatures of customers who were part of group schemes in large corporations. False addresses were also used to frustrate the requirement of a 15-day warning letter (supposedly to inform the customer of the significance of the switch of policies).

All this was fairly straightforward. But how did the investigating officer conduct the inquiry? Did this officer assemble the relevant internal memorandums, inquire about their significance and ask pertinent questions arising from them? Did the officer ask Irish Life senior executives why their replies to questions about the practice were, at best, vague? Did this officer interview former sales executives to determine whether the practice described by the anonymous former executive who swore the affidavit was representative? Did the officer attempt to identify this former executive by, for instance, asking the reporter who interviewed him for assistance in contacting him? The former sales person might well have co-operated with the investigating officer on a guarantee of anonymity.

The investigating officer accepted absolutely that there was no question of Irish Life management in any way approving the practice of churning; if that was so, then how could the memorandum of July 15th, 1994 have been written, the memorandum stating "in the interim we have agreed to allow all premium reductions in the pipeline to be processed"?

For instance, the report refers to 1994 memorandums and the identification of customers who had been disadvantaged. The report upon which the 1994 memorandums were written no longer exists. In addition "no records have been kept at regional level (on "churned policies identified in 1994) . . . similarly no records were kept of any actions which were taken as a result of these cases being passed".

The report states limply: "It is clear that `churning' of policies did take place within the company. It has not been possible to establish the full extent to which churning took place over the period 1994 to date."

This simply will not do. There is clear evidence from these internal memorandums that in one six-month period in 1994 alone, customers were ripped off by £486,864. It is not believable that during the period that churning went on the rip-off did not amount to well over £4 million and in many instances the victims of this theft were poor people.

Ms Harney's credibility has been damaged by her Department's failure to institute a proper credible inquiry into what happened.