Orders of the Day — POLICYHOLDERS PROTECTION BILL [Lords]

Part of the debate – in the House of Commons at 12:00 am on 18 July 1975.

Alert me about debates like this

Photo of Mr Peter Shore Mr Peter Shore , Tower Hamlets Stepney and Poplar 12:00, 18 July 1975

I shall be coming to that later. I hope to be able to satisfy the hon. Gentleman then.

The kernel of the Bill is the board's duty to protect policy holders of a company in liquidation. Only policy holders of authorised insurance companies who hold United Kingdom policies will be protected. Marine, aviation and transport insurance and reinsurance are excluded. Claims under compulsory insurance policies will be met in full. In the case of non-life or general business, other than compulsory insurance, private policy holders only will be protected, to the extent of 90 per cent. of the benefits. In the case of life business all policy holders will be protected and the protect- tion will also be 90 per cent., except where benefits are excessive. I shall now describe in a little more detail the protection offered in relation to each type of business.

Clause 6 sets out the various existing types of compulsory insurance. It is clearly right that where the law requires people to take out insurance policies it should also give them full protection if they find that their company through no fault of the policy holder, is unable to meet its liabilities.

Clause 8 deals with non-life policies other than compulsory insurance. Again the board will guarantee that claims outstanding at the beginning of the liquidation are met, but only to the extent of 90 per cent., and only private policy holders will be protected. The 90 per cent. figure is designed to provide real protection, but at the same time to leave an incentive for prospective policy holders to choose a prudent company—in so far as they have the information to do so.

Clauses 10 to 12 deal with long-term or life policies. The principle is the same as with general business—90 per cent. protection. There is one important qualification to the board's duties in relation to long-term policies. If it considers that the benefits provided for under a policy are excessive, it must refer it to an independent actuary; on his recommendation it will treat the benefits as reduced in exercising its duties. In such a case, the policy holder would be guaranteed less than 90 per cent. of the face value. This provision will ensure that calls are not made upon the levy in order to secure the payment of benefits under long-term policies issued on irresponsible terms. The board will finance its activities out of levies on insurance companies, one for non-life and one for life business.

The board will not be able to raise a levy before 1st April 1976, and the levy on life business will be based only on income from contracts entered into after 1st January this year. Therefore, there is no question of the levy affecting actual premiums under policies taken out before the scheme was announced. On current figures, the maximum possible levy in the first year would be about £15 million on non-life business and about £12 million on life business. If the levy proved insufficient in any year the board would have to postpone making payments until adequate funds were available, unless, of course, it could borrow the extra money needed. There is, I believe, little likelihood that the levy will be insufficient. On the contrary, in view of the tighter supervision which I have described, I certainly hope that calls on the industry by way of the levy will be rare.

In the case of long-term life business there will be one possible source of income open to the board before it needs to have recourse to the levy. Clause 17 entitles it to recover from intermediaries sums received by way of commission from a failed company. The House will know that this clause was inserted in the Bill in another place. We have some doubts how the clause, as drafted, will work in practice. We have been discussing these practical details with the industry and the brokers themselves, and it may be necessary to move certain amendments to the clause in Committee. However, we are certainly willing to accept the principle of the provision, and it may contribute something to our general aim of improving standards of responsibility in some areas of insurance broking.

One possibility we are considering in this area is the creation of a new institute for brokers which would determine standards of education, training and practice, control admission, and maintain discipline. As the House will know, I have asked the four brokers' associations to undertake a joint study with a view to putting forward proposals. They have held an initial meeting and they have set up a working party to consider this matter.