Consumer Insurance (Disclosure and Representations) Bill [HL]

Baroness Kramer Excerpts

Monday 13th June 2011 Grand Committee

[Baroness Kramer]

My Lords, I am delighted to have an opportunity to speak in what I assume is the Second Reading of this Bill and to congratulate the Government on a piece of legislation that has long been needed.

I became aware of the issues that this Bill attempts to redress when I was a Member in the other place. A constituent came to my office. She was a redoubtable lady—and thank goodness that she was. She and her husband had purchased a house, taken out a mortgage and purchased from the mortgage provider an insurance policy so that if the husband died—he was the breadwinner in the family—the insurance policy would pay the remaining payments due on the mortgage, to provide security for the widow and children.

Her husband very sadly died of a heart attack. Obviously, it was devastating for the family. She had to consider how she would go back to work and the children had to adjust to not having the presence of their father. It was a traumatic time, but the thought that comforted them was that they could remain in their house because the insurance would take care of the mortgage. However, it turned out on examination by the insurance company that in disclosing his medical history her husband had not said that, something like two years before the insurance was taken out, he had visited his doctor. He had been somewhat under stress and the doctor suggested that he was rather depressed and gave him a prescription. I believe that it was for Valium. The depression did not continue and never became a serious issue. There was no continuing medication. However, in the doctor’s notes on that one occasion, this discussion of his depression was duly and properly recorded.

On those grounds, the insurance company refused to pay out under the policy. This lady would have lost her home. She fought the issue for over two and a half years. I ended up in many a conversation with the ombudsman, there were letters to the FSA, the courts became involved and, eventually, she won her case, but it was a two-and-a-half-year struggle. In that time, she would have lost her house had her parents not been able to help her to make the ongoing mortgage payments. The loss of the house would have added to the trauma that the children and family were facing. Even if eventually the financial solution was appropriate, it would never have dealt with the emotional damage to that family.

It seems to me that this legislation will address a situation like that—I hope that the Minister can confirm that that is so. That is critical because, although in the past many people were eventually able to get redress either through the ombudsman, a long-term court battle or in other ways, the suffering because of the struggle and its consequences took an enormous toll on families. I use this example because sometimes such issues, particularly insurance, become much more real when seen in the context of what an individual experiences. I am delighted that, as I read it, the legislation seems to address all counts for such issues.

I have one further question, which perhaps the Minister can answer. He will know that relevance in insurance policies has always been significant. In a sense, relevance is somewhat captured by this legislation as it presents itself on paper. In the claim that I discussed just now, if the insurance company were to understand that the homeowner had failed to disclose this issue, it could have decided perhaps to exclude certain conditions in the policy or to charge a higher premium, but it would not have been able to use that factor to void any responsibility to pay. The sliding scale, in effect, becomes an interesting mechanism to make sure that irrelevant conditions do not intrude on the payment obligation of the insurer. That is a big step forward.

It is good to know that the Bill has been welcomed on all sides, including by the insurance industry, as it is in the industry’s interests to restore its reputation. We know that, on the street, there is very much an attitude that an insurance company will use any mechanism that it can find to avoid paying. In the long run, that does the industry no good, so its support for this legislation is a win-win all round and I am delighted to welcome it.