Financial Guidance and Claims Bill [HL]

Debate between Earl of Kinnoull and Lord Flight

Report: 2nd sitting (Hansard): House of Lords
Tuesday 31st October 2017 Lords Chamber

[The Earl of Kinnoull]

My Lords, I support these three amendments, to which my name was added after the Marshalled List was printed. I pay tribute to the clear introduction of the noble Lord, Lord Hunt.

In the debate on Amendment 24, the Minister talked about the framework element of the Bill. These amendments are three pieces of Meccano that should be added to the framework for the reasons I am about to deliver.

On the enabling provision in Amendment 39A, I looked at the Competition and Markets Authority private motor insurance report, which came out in September 2014. The data in the report was a year older so it is already four years old. The report suggests that in the sampling year 370,000 credit hires were done. It is a very big business. It estimated in paragraph 36 of the report that the detriment—that is, the overcharging by the credit hire companies—was then £84 million. That, essentially, is profit that goes to these sucking entities, which has to be paid by everyone through their motor insurance policies.

The report goes on at length about whether anything should be done about it. It said that, on balance, it is not quite enough money yet to do anything and, anyway, there is not a convenient Bill travelling through Parliament on which one could hang any framework. However, I can say from my experience in the insurance industry that things have moved on rapidly over the past four years. I do not know what the detriment is today because no one has been calculating it, but it is certainly a heck of a lot more than the £84 million that the CMA measured in 2013. Although the evidence base might not be quite there for the Government to act, certainly the Meccano pieces of the framework should be put in place. That would be greatly to the benefit of us all and I can see no downside to it being done.

My logic is exactly the same when it comes to Amendment 39B. Unfortunately I have not had time to hunt around for some relevant statistics, but this area is also an incredibly profitable business for someone sucking money out of the insurance payments that are made. Ultimately, of course, it means that ordinary citizens have to pay higher insurance premiums. This is also a growing business and it is likely that there would be a strong evidence base for a regulator to do something pretty soon.

Amendment 39C, as the noble Lord, Lord Hunt, said, is slightly different. Some powers are already in place, but the insurance industry is concerned that the small claims track increase will mean that within small claims there is plenty of scope for customer detriment, which again is very bad. This is a free piece of Meccano that can be put in so that at some point in the future, if the evidence base is there, the Government will be able to move very swiftly to sort it out rather than having to wait. I note that it has taken three years since the Competition and Markets Authority report for a suitable Bill to come forward on which to hang these important amendments. I hope to hear good news from the Minister.

[Lord Flight (Con)]

My Lords, I rise briefly to support the amendments in the name of my noble friend Lord Hunt. We all know what they address and we may have experienced these abuses. The existing law and regulations fail to address them, and it is time that they did so. As has just been pointed out by the noble Earl, this is an appropriate piece of legislation in which to include them. I hope very much that the Government will accept the amendments.

Enterprise Bill [HL]

Debate between Earl of Kinnoull and Lord Flight

Monday 2nd November 2015 Grand Committee

[The Earl of Kinnoull (CB)]

In moving the amendment, I shall speak also to Amendment 52C. I declare my interests as in the register. I am seeking to carve out business that is placed today in London’s international insurance and reinsurance markets from the insurance-related clauses of the Bill—Clauses 20 and 21. In tabling the amendments, I have had a lot of help from the Lloyd’s Market Association, or LMA, and the International Underwriting Association of London, or IUA, which are the two market associations representing all the insurers involved in those markets in London. We have the LMA’s CEO and his legal director here today, watching. I also very much appreciate the help that I have had from the noble Lord, Lord Flight, who has been full of enthusiasm and interesting points. Finally, I thank the Minister, who saw us all in her room, armed as she was with a formidable team, which included people from the Treasury and the Law Commission. It was a very helpful discussion on a tricky area, where the businesses involved mean the Government and the country well. We promised to supply the Minister with some further evidence, which has started to appear at the LMA, and we hope to communicate that evidence to the Minister later in the week.

Late payment of valid claims by participants in the insurance markets is something that the vast majority of those markets strongly dislike. It is very irritating as an insurer trying to do a good job to see someone doing a bad job and making a business out of not paying their valid claims on time. The ombudsman and regulators have done quite a good job here in reducing the size of the problem over the years, and have certainly helped a lot in making the annualised impact benefit be assessed at £1 million, as it was in the impact assessment for the Bill. I am sure that it would have been a lot bigger in older years.

The London market is peculiarly big. In November 2014, the Boston Consulting Group did an assessment of the market and thought that it had annualised gross written premiums of £60 billion; 48,000 people worked in it; and it represented 20% of the City’s GDP, about 8% of London’s GDP and approaching 2% of the UK’s GDP. I should say that of the £60 billion, about £8 billion is affected by the Bill.

International insurance is a highly competitive world. The London market is much the largest in the world, but we should be aware that other markets are constantly nipping at its heels. Business comes to London not just because of London’s 300-year record of paying claims on time and its infrastructure but because the capital is here. I want to concentrate on the reason that the capital is here. Most players active in the London market are active in at least one other market around the world, if not all of them. They can meet from time to time to decide where to deploy their capital. Obviously, they will try to deploy it in whichever market they think it will have the easiest ride and present them with the opportunity to make the best profits.

Insurance is just like any business, in that a percentage of claims give rise to disputes. Unamended, the Bill could, the LMA, the IUA and I feel, lead to an “unreasonable delay” cause of action being introduced as an extra part of many disputed claims, leading in turn to extra claims costs and a lot of aggravation for the insurers concerned—in other words, grit in the machinery. That would naturally be less attractive to capital. Many factors decide where you want to deploy your capital as an insurance group, but I put it to the Minister that one wants to try to ensure that we do not have grit in the London machine, because any redirection of capital elsewhere would be damaging to the London markets.

The amendments carve out two things. The first is reinsurance, where the only parties involved in the transactions are insurers. I very much hope that that is uncontroversial. The second thing is large risks. Large risks is a concept that we have tied to a European Union definition which is pretty well understood by the professional insurance market—certainly everyone in the London international markets would understand it. We thought that that was a reasonable starting point to discuss how to arrange a carve-out so that there was none of that grit in the London machinery.

The impact assessment for the unamended clause is for a gross benefit of £1 million per annum. In this intensely competitive international market, international insurers find that they are being consistently marked by brokers and other insurers, so someone who does not pay his valid claims on time is very unlikely to be shown a lot of business in future. It is self-policing. It is for that reason that I submit that, of the £1 million gross benefit, not much would come from the international insurance markets. One would have nearly the same gross benefit even with the carve-outs.

I end by saying that my career has been in risk. I look at the upside and downside of things, try to assess probabilities and act accordingly. The upside here of the unamended Bill is some portion of the £1 million per annum annual benefit—I have tried to say that it is a small portion. The downside is needless damage to a £60 billion market that is of great benefit to the United Kingdom.

[Lord Flight (Con)]

My Lords, I support the amendments of the noble Earl, Lord Kinnoull. I do not have any direct interest in Lloyd’s, but I endeavour to keep my eyes and ears open to things that come through Parliament which may be acutely damaging to our financial services industry and the City of London. As many noble Lords will know, I raised precisely the same point at Second Reading.

It is important also to note, as the noble Earl, Lord Kinnoull, pointed out, that the whole of the Lloyd’s industry is behind him on these points. The various trade bodies and organisational bodies, several of whom are here today, are as concerned as he and I—he more particularly—about the risks here. My understanding is that the Minister has taken on board pretty much the Lloyd’s reinsurance situation, which is covered by paragraph (b) of Amendment 52C, but certainly wants more evidence relating to Amendment 52C, which is the potential risk of damaging the large risks market. Amendment 52C spells out what the large risks market is and its definition under the 2009 EU directive.