Mesothelioma Bill [HL]

Debate between Lord Browne of Belmont and Lord Freud

Wednesday 5th June 2013 Grand Committee

[Lord Freud]

I will double-check, my Lords, but my understanding is that a reserve from an insurance company is not specified out. There would be a general sum overall and we would not be able to extract those elements. I have made clear that we are not talking about a general level of doing business but about a specific reserve created because of this particular liability. That is what we are talking about.

[Lord Browne of Ladyton]

If I understand correctly the background papers to this scheme, particularly the impact assessment, the Government have agreed effectively to fund this scheme from the period July 2012 until February 2015 by a process of using what will be paid to them in recovered benefits. The wording in the impact assessment is that the Government have agreed to do this. However, is not all of this argument utterly irrelevant if the insurers pass this on in the premium? Paragraph 97 of the impact assessment comes to the wrong conclusion. The argument clearly comes to the conclusion that that is what they intend to do.

[Lord Freud]

That is one of the central issues with imposing a levy based on the existing market share. There is a risk that that will happen if we push up the levy too much, particularly if there is a sharp increase. As noble Lords are aware, the way in which these matters normally work is through a sharing of the levy. The likelihood is that some of the levy may be passed on in the marketplace. However, the levels at which we have established the levy—and the smoothing mechanism to which the noble Lord, Lord Browne, referred was part of it—were achieved by taking some of those other payments and circulating them in the first year to give us the best possible chance that the insurance industry will absorb the bulk of the levy.

I shall now provide the figures that noble Lords have been waiting for so incredibly patiently. If this scheme started on 20 or 21 February 2010, the extra costs would be £119 million. As to the undated amendment of the noble Lord, Lord Howarth, our best estimate is that if we went back to 1968, the figure would be £747 million. Clearly, a large number of assumptions were made in reaching that figure.

I would just like to finish off the figures. I am not going to spend too much time going over the noble Lord’s “cornucopia” argument. I just want to make this simple point: one of the things that the insurance industry does, at least when it is in a competitive position, is look to build in what the returns on its reserves and its income may be when it sets rates. It is not just a kind of a surprise—“We got all this extra money out of those returns!”—but is built into the marketplace. Otherwise, everyone in the whole world would become an insurance operator, and we would all have been wasting our time because it would have been a free lunch. There is some competition in the market. Clearly it is a very interesting and complicated market, and it depends on how much capital goes in and out of it. Let us not go into that. We have had a lot of debate about the more general issues, but I just thought that I would touch on that.

As insurers were able to start the reserve only from 25 July last year, any attempt to back-date eligibility further could jeopardise the scheme and bog it down in legal challenges from insurers on the costs. I know that noble Lords would like to do more, as indeed would the Government, but we need to consider the effect of an open-ended scheme against one that can be afforded whose costs can be absorbed as much as possible by the insurance industry without putting pressure on it to increase insurance premiums and transfer the extra costs on to current employers.

Clearly, any date will mean that some people miss out. Choosing the dates in the amendments would mean that more people received the payment, but there would still be people who did not. On balance, I believe that pinning eligibility to a date when people with diffuse mesothelioma had a reasonable expectation of payment and insurers knew when they needed to start to reserve the levy, represents the best that we can do. I am not in a position to provide or mention anything on legal advice that we may or may not have received by convention, which noble Lords will be fully aware of.

I need to make the point that social security benefits and existing lump-sum schemes will continue to provide early support for people with the disease who were diagnosed from before the 25 July date. I therefore urge the noble Lord—