New Clause 1 — Review of the impact of the Act on availability and cost of consumer insurance

Part of Bill Presented – in the House of Commons at 7:15 pm on 6 March 2012.

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Photo of Chloe Smith Chloe Smith The Economic Secretary to the Treasury 7:15, 6 March 2012

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 30 June 2013, and insurers refuse to renew it on the basis that it distorts the market.

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.