I beg to move, That the clause be read a Second time.
It is fortunate that we have the opportunity to debate the Bill on the Floor of the House on Report and Third Reading for a number of reasons. First, the Committee stage of the Financial Services Bill is currently under way upstairs in Committee Room 12, where the Financial Secretary, who usually deals with these issues, is answering the debate and addressing the many amendments that I and my hon. Friends have tabled. It is a shame that the Government saw fit to put only one Minister on that Committee, because it means that he is unable to join us in this debate. I have popped down briefly. It is a pleasure to see the Economic Secretary fielding the questions on his behalf. I have a number of them for her on the detail of the Bill.
Secondly, it is fortunate that we are having this debate on the Floor of the House because, rather bizarrely, the Government chose to take Second Reading upstairs in Committee. I did not know that such Bills could have a Second Reading debate on the Committee corridor, but apparently, under one of the more arcane Standing Orders of the House, Law Commission Bills can be debated upstairs in Committee on Second Reading and never usually see discussion on the Floor of the House. I do not believe that it is right for primary legislation not to have a hearing on the Floor of the House. That is an important principle. However, despite my objections, the Second Reading debate happened upstairs. I challenged the Financial Secretary to hold the Report stage on the Floor of the House and he eventually relented, under extreme pressure. I regard that as one of my greatest triumphs in opposition. It turns out that the Report stage could also have been taken in Committee, so this piece of primary legislation need never have seen the Floor of the House of Commons.
I realise that I have digressed, Mr Deputy Speaker, but I just wanted to show how fortunate we are to have the opportunity to debate the Consumer Insurance (Disclosure and Representations) Bill here today.
This is a broadly positive Bill. I place on the record my thanks to the Law Commission and the Scottish Law Commission, which in 2009, when the previous Administration were in office, published a joint report entitled, “Consumer Insurance Law: Pre-Contract Disclosure and Misrepresentation”. That report resulted in this legislation coming forward.
The new clause is simple and, I hope, relatively uncontroversial. I hope that the Government will accept it as a positive step forward. The many hon. Members
who have joined us for this debate will know that consumer insurance is incredibly important to all our constituents. We are talking not just about life insurance, which members of the public might want to take out, but more day-to-day insurance such as household and contents insurance, building insurance, motor insurance, flood risk insurance, personal effects insurance, health insurance and even pet insurance. There are a number of insurance schemes that the Economic Secretary or my hon. Friend Susan Elan Jones may have taken out. Consumer insurance is, therefore, incredibly important.
Although superficially it looks as though the Bill changes only small aspects of contractual matters, it nevertheless gives us the opportunity to take stock of the state of the consumer insurance market and to ask where it is heading, particularly in the light of its provisions. The Bill has a number of important purposes, which I will touch on at Third Reading. Essentially, the story goes back to the 18th and 19th centuries, when a degree of common law had accrued and there were questions about a new contract for insurance. At the start of the 20th century, it was felt that the Marine Insurance Act 1906 needed to be placed on the statute book.
I note that the hon. and learned Gentleman recalls that from his history studies. Although, strictly speaking, the 1906 Act applies only to marine insurance, it has since been generally understood that it applies to all forms of insurance. Essentially, its provisions are the building blocks of the contractual process that is involved in the consumer insurance trade.
The hon. Gentleman will know that the 1906 Act, which was drafted by Sir Mackenzie Dalzell Chalmers, is commended to the House by many insurance lawyers as a wonderful piece of drafting. I suppose, as this is my first intervention in this debate, that I should refer the House to my entry in the Register of Members’ Financial Interests; I am an insurance practitioner. Does the hon. Gentleman think that it is a good idea for Parliament to intervene in this way, given that there are certain respects in which the 1906 Act altered the common law? For example, the test of loss in relation to marine insurance now differs from the test of loss in relation to non-marine insurance.
I am grateful to the hon. and learned Gentleman for bringing his experience to bear on this debate; it is incredibly useful. I suppose that, to a certain extent, we all ought to declare an interest in these matters as consumers, because some of our arrangements may be affected.
The hon. and learned Gentleman is right that the 1906 Act has stood the test of time for a considerable period, indeed for more than a century. I confess that I do not have a copy of it in front of me, but I will paraphrase its arrangements. It enshrined in law certain principles of disclosure. In particular, it placed a considerable emphasis on the requirement for the party seeking insurance to disclose any issues that might be broadly relevant in the insurance process. It did not require the
insurer to ask a series of specific questions about the particulars of the individual being insured. That was left to the discretion of the insurer. That is part of contract law. Of course, common law has accrued since that time. Some serious problems have developed in recent decades in relation to where the balance is struck between the insurer and the person being insured. The onus falls perhaps too heavily on the person who is being insured.
For example, if you have taken out household contents insurance recently, Mr Deputy Speaker—I am not sure whether you have, but I suggest that you do, because it is a wise thing to do even though it can be quite expensive—you may have been asked a number of questions about the type of mortice lock you have and other things about your place of residence. If you did not volunteer particular data about the building in which you reside, how frequently you are away on business and so on, an insurer with a beady eye on avoiding an obligation to pay up could invalidate your insurance should you be unfortunate enough to be burgled and need to make a claim. That would be through no fault of your own, other than your failure to disclose a number of matters to the insurer.
Consumers up and down the country have had such problems for a long time, and they cause great frustration and sometimes a sense of mistrust between insurance companies and parties seeking to be insured. I therefore welcome the Bill, which has a large dollop of cross-party support. It will hopefully clarify the issue and move us on from the 1906 Act, however finely drafted it was. It will put in statute a clear and simple set of rules updating the law on pre-contractual disclosure, and it will address the problem of misrepresentations being made, sometime deliberately but often unwittingly. It is important that the accretion of case law, guidance and voluntary codes is superseded by this statute law.
It is important that we have the opportunity to review the Bill one year from its commencement, partly because of the good faith that many consumer bodies have placed in it. Many organisations have written to support the proposals in it, which is a very good thing. They have done a fantastic job of scrutinising the development of the Bill by the Law Commission. To assure those bodies that the Bill’s provisions have been the right ones to put on the statute book, a simple commitment to a review after a year would not be especially onerous.
Paragraph 17 of the regulatory impact assessment mentions that a number of additional claims payments might result from the tightening up of disclosure provisions under the Bill. They represent a fraction of total payments, but it will be interesting to see whether consumers receive payouts more frequently as a result of the specificity that the Bill will introduce to insurance contracts.
There are different types of insurance market, and we cannot simply lump them all together and assume that they will all be affected equally by the Bill. Certain insurance contracts related to the business sector are covered by other legislation in different parts of the world. There are certain consumer insurance contracts, however, that could be regarded as discretionary or luxury insurance. It might be desirable to have them, but they are not essential for daily life. For instance, the Government Whip may have a pet animal—a cat or a dog.
A llama? I did not know that. I am not sure I needed to know it, either, but the hon. Gentleman may choose to take out insurance on his pet llama. You might well ask yourself where this is going, Mr Deputy Speaker, but the key question is whether that is a luxury insurance product, or whether the hon. Gentleman has such affection for that pet llama—
In that case, he will feel that it is an absolute necessity to ensure that his llama always has pet insurance. He may well find that under the Bill, rather than simply taking out a generic insurance contract, he is asked a series of specific questions about his pet llama. They could include how long he has kept the llama, its age and the environment in which it is kept. He may well think to himself, “Well, this insurance could become quite expensive,” and feel that of all his insurance products, he can leave that one and take a risk. Poor old llama—it may well just have to take its chances.
Before the hon. Gentleman frightens my hon. Friend Michael Fabricant away from insuring his llama, I will follow my hon. and learned Friend Stephen Phillips, who declared his interest, and point out that I am a former director of NFU Mutual. That farming insurance company would find no difficulty whatever in providing insurance for a llama.
I think a deal has been transacted on the Floor of the House. However, under the provisions of the Bill, a series of disclosures may be requested from hon. Members seeking such insurance.
My point is simply that we need to know the impact that the Bill will have on pet insurance and other discretionary insurance, but also, perhaps more importantly, on essential types of personal insurance that we all want our constituents to have, such as household insurance, flood risk insurance and motor insurance. In those cases, there is less wiggle room for individuals to decide not to take out insurance.
There are separate discussions to be had in another place about the problem of certain drivers thinking, “Well, the fine that I get for driving uninsured is less than the cost of motor insurance, so I will take my chances and drive uninsured.” In my view, the penalty for driving uninsured needs to be higher than the cost of getting insurance. That is a pretty straightforward point, but you would be surprised, Mr Deputy Speaker, by the small fines that are sometimes issued to people who drive uninsured. I am sure that hon. Members will know of cases in which constituents have unfortunately been involved in accidents caused by uninsured drivers. When those uninsured drivers are prosecuted the fines are a pittance, which sends the message, “Why bother with insurance?” We must return to that issue, but it is a moot point whether it would fall under the scope of a review under the new clause.
Mandatory types of insurance are particularly important in the Bill. I can foresee circumstances, particularly with car insurance, in which the insurance sector feels that it is not getting much return. Many of our constituents howl with derision at the sheer expense of motor insurance—the AA recently said that it rose by about 16.4% in 2010. The Bill will make provision for the disclosure of certain extra pieces of information, even though people have no choice but to take out motor insurance if they want to drive; it is a legal requirement.
People will be surprised to find that even though motor insurance costs are escalating—that problem needs to be tackled in a number of ways—the insurance sector says that motor insurance is not massively profitable. The Association of British Insurers has described it as one of the most challenging products for insurers. I believe it has stated that premiums amounted to £10.7 billion and claims to £10.3 billion in 2010, so often the margins are not particularly great.
It is difficult for hon. Members, as non-experts in that trade, to know whether insurance companies are making significant profits, but let us take them at their word that they are not doing so. I can envisage a situation in which insurance companies say, “We want to back out”—pardon the pun, Mr Deputy Speaker—“of the motor insurance trade.” They might feel that in order to do so, they will deter new contracts for motor insurance. One way of doing that would be by placing a series of extra hurdles in front of customers wanting to obtain such insurance.
Many young drivers will know to their cost how difficult it can be to get insurance cover for their vehicles. I do not know whether the Minister has a driving licence—
I am glad the hon. Lady has insurance—I would expect nothing less. The Government car service will certainly have insurance. Not so many years ago, when she was under the age of 25, she might have found it extremely difficult even to find companies that would insure her. She is doubtless a very careful driver with an unblemished record, and she might find it easier to get insurance as a woman driver, but many young male drivers find getting insurance incredibly difficult. My point is simply this: we need the ability to review the impact of the Bill to test what is happening in motor insurance, particularly for those drivers who struggle to get insurance.
Additional hurdles could be placed in the way of those drivers. I do not object to the shift in the balance of disclosure in the Bill—I want to put that on the record—but it is important that we take time to recognise that there could be circumstances in which those seeking motor insurance find it more difficult to get as a result of these measures. We just do not know, which is why we need a review one year after the commencement of the legislation.
Another aspect of a review would be households subject to flood risk. Apparently—I did not realise this until I researched it—one in six homes in the UK are subject to the “at risk” category in respect of flooding. Amounts paid out by insurers since 2000 exceed £4.5 billion. A recent article in This is Money said that annual flood damage claims are running at more than £1 billion each year, and that 200,000 homes could become uninsurable by 2013 if an agreement cannot be reached between the Government and the industry on high-risk areas. That is incredibly important to the affected individuals, whether in Hull, where people recently had difficulty in gaining insurance, or elsewhere.
The changes on disclosure could well affect the ability of individuals to take out an insurance contract. Many who have taken out flood insurance might have found, unwittingly, that they were unable to receive a payment even though a catastrophe had occurred—a flood, a river bursting its banks or whatever—because they did not realise they were supposed to disclose certain aspects.
I want a review of the Act after one year. The provisions will, I hope, improve the situation and we will find that more people can take out flood insurance in a way that means they and insurers are assured that the contract will be fulfilled and that payouts can be made following floods and other such eventualities, but we do not know what the impact of the measure will be.
The Bill is relevant to flood victims, for whom the cost of insurance—if they can get flood insurance at all—could increase 500%. It is therefore very important that we have a review to see what happens in such circumstances. It is important that we see what is happening in the market for discretionary types of insurance as a result of the Bill, but we also need a review of the essential, mandatory, roof-over-the-head types of insurance. For those reasons, it would be helpful if the Minister accepts that such a review will take place.
I rise to make only a short contribution. The new clause is misconceived. The Law Commission did not think it necessary, and with the greatest respect, Chris Leslie has undermined his own case, because only in circumstances in which claims that ought to be paid have not been paid might there be any adverse impact on the costs of the types of insurance contract that the Bill covers.
I say to the hon. Gentleman and the whole House—to be fair, there is no one but him and the Opposition Whip on the Opposition Benches—that in this day and age, I am pleased to see the Bill before us. It is not only long overdue, and perhaps I shall speak to that on Third Reading, but it is inconceivable either that it will remove products from the market or add greatly to the costs of the type of insurance contract that it is designed to cover. I cannot help feeling that the hon. Gentleman will not wish to press the new clause to a Division.
I hear the hon. and learned Gentleman’s points, and I do not wish in any way to denigrate the importance of the Bill—it is extremely positive and important legislation—but the fact that the legislation originated with the Law Commission does not necessarily make it perfect or negate the need for a review. He should not be under that illusion. Just because those
fine minds at the Law Commission introduced the legislation does not necessarily mean that we should not scrutinise it.
I am not for a moment suggesting that the Bill should not be scrutinised.
Insurance companies ought to pay claims that they have not paid previously as a result of an inadvertent misrepresentation or non-disclosure—everyone wants that change, which is the reason for the Bill. The only way in which the costs of the types of insurance contract that the Bill covers will increase is if claims that ought previously to have been paid—that is legitimate claims—are paid. Disreputable insurance companies—I venture to suggest that there are none left in this country—currently might decline to pay a claim on a specious basis. For that reason, the review proposed in the new clause is unnecessary. I anticipate that the Government will not wish to carry it out, and the hon. Gentleman is rather hoist on his own petard because of the argument he has made in support of the Bill.
My hon. and learned Friend will know that arrangements are in place for the Financial Ombudsman Service to look at the circumstances to which he refers—when an apparently proper claim is declined by an insurance company on specious grounds. Notwithstanding the 1906 Act, the financial ombudsman has, under the “treating customers fairly” provisions, which were put into operation by the Financial Services Authority, many times ordered a payment to be made. Is that not one of the reasons for the Bill? The situation will be that legislation rather than the financial ombudsman will be involved in righting wrongs.
My hon. Friend makes a valid point. The insurance industry has long been regulated and the ombudsman has long been able to make declarations, but there are circumstances in which one cannot go to the ombudsman—for example, if the financial value of the contract is too high. There are circumstances in which the ombudsman will not intervene—for example, if legal proceedings between the consumer and the insurance company or, if Lloyds, some other insurer, are already afoot. In addition, experience dictates that the financial ombudsman is not, for example, particularly au fait with some of the more obscure parts of insurance law with which the Bill grapples, such as those parts of common law that deal with basis clauses and the turning of representations into warranties when made the basis of the contract.
I hear, then, what my hon. Friend Jonathan Evans says, but it is fair to say that the Bill is not only welcome but contains proposals that the Law Commission has properly considered and requires no review of the type that the new clause contemplates. For those reasons, the new clause is, in my respectful view, misconceived; and for those reasons, I am sure that the hon. Gentleman will not push it to a vote.
I was rather attracted to the new clause tabled by Chris Leslie. The idea that the House should engage in post-legislative scrutiny is a good one and accords with good legislative practice. That, effectively, is what he is saying. He is not saying that the House would necessarily be involved; he is saying
that the Treasury, the Department sponsoring the Bill, would have an obligation to assure everybody about the impact of legislation. This could be an important precedent. Perhaps, in due course, it will be part of official Opposition policy to provide for post-legislative scrutiny.
This area of insurance is extremely complicated and, as the hon. Gentleman said, very expensive for many people. The reason it is so expensive is that there is an enormous amount of fraud, particularly in relation to motor accidents. We heard recently about the high incidence of claims for whiplash. Almost everybody involved in even the most minor bump is encouraged to claim on their insurance for whiplash injuries, and invariably the insurance companies end up paying a lot of money to prevent what they would describe as nuisance claims from going to full litigation. Effectively, they are held to ransom, and not surprisingly it is the customers of those insurance companies who end up paying the bill through higher premiums.
That situation is particularly pernicious with compulsory insurance, which motor insurance is—third party, fire and theft, and so on—for people seeking to drive a motor vehicle on the road. It is particularly tough on young people, and has been made tougher by this ludicrous European legislation declaring that insurance companies cannot take account of whether a young girl belongs to a class group with a lower claims rate than a young man who belongs to a group with a higher claims rate and who therefore will face additional costs.
As a consequence, the premiums for young women have increased significantly faster than premiums for young men. I suppose I have a family interest, because my daughter has recently acquired her first car and taken out her first insurance policy. I can reconfirm what the hon. Member for Nottingham East said. Obviously, she did not have a no-claims record, because she did not have any driving experience, and in the end, the best deal was from a company offering her 10 months’ insurance, which gave her the prospect of getting a no-claims discount after 10 months rather than after a year.
My hon. Friend is ahead of the game. I was interested in his earlier intervention declaring his knowledge and experience of one particular insurance company—a company from which we sought a quote but which was extremely reluctant even to consider providing insurance cover at a reasonable price. The reason was that it did not want to engage in this market and had recently changed its policy. It is a pity that this mutual insurance company has decided that the pressures are such that, even for long-standing customers, it is not prepared to take on, at a reasonable price, the sort of risk to which I have referred.
It is easy to go unnecessarily wide on such an issue—perhaps I was led astray by the hon. Member for Nottingham East because of the width with which he introduced his new clause. However, I look forward to hearing the Minister respond to the idea of post-legislative scrutiny. Perhaps, Mr Deputy Speaker, if she could fit
that point into the scope of her response to this short debate, she could say whether it might become Government policy to make post-legislative scrutiny the norm rather than the exception. I hope, at least, that she will come forward with some strong and persuasive arguments so that I do not have to join the hon. Gentleman in the Lobby in support of new clause 1.
I welcome the three contributions and the interventions we have just heard. I wholeheartedly welcome the cross-party support that the Bill enjoys overall. In responding to the points made, I am sure that I will make my hon. Friend Mr Chope happy today. I also take this opportunity to thank my hon. and learned Friend Stephen Phillips for his learned and helpful contributions.
On a brief note of discord, I am afraid, I must recommend a purchase to Chris Leslie, who kindly recommended motor insurance to me and Llama insurance to my hon. Friend Michael Fabricant. I must recommend to him the Standing Orders of the House of Commons—he can purchase a copy for a mere £10, if he cannot find a copy in the Library—page 53 of which contains the answer to his questions about Second Reading Committees in relation to Law Commission Bills. I recommend that reading to him.
I will address the new clause in some detail and answer the question about review. I think that my hon. Friend the Member for Christchurch will be pleased to know that the Treasury is already committed to a post-implementation review of the Bill in three to five years which will examine whether the Act, as we hope it will then be, has achieved its objectives, identify whether there are any unintended consequences, and assess the costs and benefits of the legislation. I say to the hon. Member for Nottingham East, then, who might be pressing his new clause, that given that it seeks a review, it is an unnecessary addition to the Bill.
It is also unnecessary, particularly in the context of the Bill, to draw our attention to the cost and availability of consumer insurance, because the Government already take those issues very seriously. We do not need a review of the Bill to draw attention to the issues because we are already taking action on them. I will go into two of the areas that the hon. Gentleman mentioned: motor insurance and flood insurance. Hon. Members will know that three weeks ago the Prime Minister met the insurance industry and consumer groups to discuss rising premiums and the steps that we will take to bring them down.
On motor insurance, the Government have already taken a wide-ranging series of actions to tackle the rising costs of car insurance, and we are committed to doing even more. We are proceeding with a series of legal reforms that will reduce the costs associated with personal injury claims. The cost of claims following motor accidents is a crucial driver of insurance premiums, and we think that under the current system too many people can profit from minor or spurious accidents at the expense of motorists. We expect our ban on referral fees and our reform of no win, no fee agreements to
reduce both the level of fees and the number of frivolous claims. We have also committed to reducing the £1,200 fee that lawyers can currently earn from small-value personal injury claims. In return, insurers have committed to ensuring that those savings will be passed directly on to policyholders, which I am sure all hon. Members here today would welcome.
However, there is still more that we can do to reduce the unnecessary costs of personal injury. According to the Association of British Insurers, one person in 140 claims compensation for whiplash every year in the UK, which amounts to many more claims than in 2008, when they cost £2 billion. That adds a substantial cost to premiums. We are now working to identify effective ways to reduce the number and cost of such claims. Options include improved medical evidence and technological breakthroughs, as well as looking at the threshold for claims or the speed of accidents. Progress on that will be made in the coming months. We are taking steps now, thus negating the need for the new clause.
Although those steps will help to reduce costs for all motorists, we are aware of the particular difficulties facing young drivers. I shall perhaps not gratify the hon. Member for Nottingham East by putting my age on the record—he may know it from elsewhere—but we recognise that the cost of insurance can be prohibitive for some of those facing premiums in the thousands of pounds. Importantly, we also recognise the effects that this can have on employment prospects. At the Prime Minister’s summit, the Government and the insurance industry committed to working together to look at what more can be done about young drivers’ risks and safety. A key prospect for improving affordability for that group could be the wider use of telematics or smart-box technology. I have no doubt that Miss Chope might be one of the early adopters of such technology—we never know—which gives young drivers the chance of affordable car insurance by adopting safer driving.
Let me turn to flood insurance, before swiftly wrapping up on this new clause. I am sure that there will be interest in this issue across the House, and particularly among constituents in households that are, or might be, at high risk of flooding. Domestic insurance that covers flooding is currently widely available, even in areas at significant flood risk, and at similar prices to elsewhere. Around 80% of households at significant risk that purchase insurance do not, however, pay a price that reflects their flood risk; rather, they are subsidised by those at lower risk, which pay higher premiums. The Government therefore have an agreement with the insurance industry—known as the statement of principles—which commits insurers to offer cover to properties at significant flood risk where plans are in place to reduce that risk within five years. The agreement is due to end on
More crucially, there is a continuing market trend for insurers’ pricing to be more risk-reflective as better information on flood risk becomes available. In the absence of intervention, insurance may become more costly or, in a small number of cases, unavailable for some customers at high flood risk. The current statement of principles says nothing about the price of cover, and therefore does nothing for those households that might
face premium increases. On the theme of action we are already taking, we continue to work with insurance companies to consider measures that might help to safeguard the affordability of flood insurance for households. As part of that ongoing work, we will be considering the feasibility, value for money and deliverability of targeting funds to help those most in need. That includes models suggested by the ABI, which involve subsidising insurance premiums. We have committed to providing details in the spring, which will give insurers certainty more than a year in advance of the expiry of the current agreement. The priority will then continue to be to invest in reducing the risk of flooding in the first place. Action to reduce flood risk plays a vital role in bearing down on insurance costs. The Government are investing £2.17 billion on flood and coastal erosion risk management in the spending period up to March 2015, which will provide better protection to more than 145,000 homes.
In conclusion, the Government continue to take the impact of the availability and affordability of consumer insurance very seriously indeed—I have given two examples, motoring and flooding. The new clause, which seeks to add broad provisions to the Bill, is therefore not necessary to ensure that consideration is given to those issues. I would therefore ask the hon. Member for Nottingham East not to press his new clause.
I am grateful to the Minister and other hon. Members for taking the time to reflect on my new clause, which I do not think would be particularly onerous. It is important that we should have the opportunity to test the impact of the Bill, which is quite significant, given some of the changes—albeit welcome ones—that it is making to the contractual process.
In the new spirit of accord with Mr Chope—in which I so frequently find myself, particularly given his recent comments about the Government’s ridiculous plans for child benefit—I am quite taken by his suggestion of post-legislative scrutiny. Ensuring that we properly reviewed certain provisions in statute would be a useful initiative to take; indeed, in many ways that is why we tabled this new clause. The Minister has helpfully set out the Government’s view in those areas on which I want a review to focus. She believes that the Government are taking steps to deal with some of the difficulties in motor insurance, but I have to say that I disagree. I do not think that enough measures are being taken to help consumers who find that market particularly difficult. Also, the cuts in the flood defence budget are raising the prospect of householders being flooded more frequently, about which many constituents will be concerned.
However, I understand the Government’s general commitment to keep an eye on the issue. The Minister implied that the new clause was not necessary. It is a shame that she was not able to accept it, but given that we have at least had the chance to air the issues, and on the Floor of the House too—despite the ridiculous provisions of the Standing Orders of the House—I am more than happy not to press the new clause. Obviously we do not want to dwell on it for too long, and I think the point has been made. I therefore beg to ask leave to withdraw the clause.
Clause, by leave, withdrawn.