Mesothelioma Bill [HL]

Debate between Lord James of Blackheath and Baroness Sherlock

Wednesday 5th June 2013 Grand Committee

[Baroness Sherlock]

My Lords, I shall speak to Amendments 11 and 14 in my name and that of my noble friend Lord McKenzie of Luton, and to the other amendment in this group. Since we are in Grand Committee, I think that we may take all these amendments that have the same purpose to probe whether—and, if so, to what extent and why—it is reasonable to limit access to the scheme from the date of diagnosis.

I had intended to spend a bit of time trying to understand what the first point of diagnosis meant but, just before we came in, I glanced at the draft scheme rules and realise that this question is covered there in some detail. Where will we have the opportunity to discuss that in more detail? I would be happy to return to it at that point.

On the main issue underpinning these amendments, I, too, have had representations from those supporting people with mesothelioma concerned about their exclusion or potential exclusion from the scope of the scheme. Imposing a limitation to people diagnosed on or after 25 July 2012, which of course is more than two years after the close of the consultation, means that, as my noble friend Lord McKenzie noted at Second Reading, probably some 600 people will have died from mesothelioma during that time. As those representations have said, it seems very unfair that they should be excluded from the scheme. This is a point very well made by the noble Lord, Lord Alton, and others: the date of consultation would be a natural point. It falls to the Minister to persuade the Committee and then the House of any other date, which so far I do not think we have had.

The Minister said at Second Reading that the reason for not keeping the scheme totally open-ended is that the costs would be prohibitive. The reason for picking the particular date of 25 July, we learnt from a subsequent briefing, was that that was the point at which there would be a reasonable expectation that sufferers could get a payment and therefore relevant insurance companies could provide in their accounts for the liability that would ensue.

I wonder if the Minister could help me to understand this a bit more. What is the regulatory or legal framework under which insurers either may or may not provide for a liability at a particular date? I would also be grateful if he could explain whether he actually means reserving for a liability. If so, how is this a liability? Unlike for people who claim under the courts in the normal way, for which there clearly is a liability for which an insurer will provide in the normal way, based on the premiums and the exposure that they have had for business written, is the payment that will be made in the levy not simply in fact an annual payment rather than a liability? If so, how is it in any way covered by rules on provisioning or reserving in the accounts? I would be grateful if the Minister could explain that to me. If not, maybe he could explain where it comes from.

Whether or not the industry has to reserve, it clearly would have to plan to face a change in its cost base as a result of any decision taken at the end of the Bill, so it is worth revisiting how we got here. The noble Lord, Lord Alton, has made reference to the Accessing Compensation document issued in February 2010. He quoted the most apposite point, where the Government of the day, in the person of my noble friend Lord McKenzie, made clear that their intention was to take some action in this area. In terms of funding for the ELIB to which he referred, though, the document was brief. It said:

“One option would be for the insurance industry to provide the funding. The argument for this is that the industry has, in most cases, taken the premiums for policies that are now not being traced. The industry should therefore fund the full costs of an ELIB, including the set up and running costs”.

Well put. No other funding source, at least that I have found, was proposed in that document. In other words, if I am right, there was no option two. An impact assessment produced with that document showed that there was an assumption of an implementation date of April 2011. The document also looked at the scope of the fund and therefore the potential scale of the cost that insurers could reasonably expect to have to face, having read that document.

The impact assessment assessed costs along two axes: whether or not to include all relevant diseases or just mesothelioma, and whether simply to take people from the start of the scheme or all claims brought in the past three years. It is clear that, whether or not the extent of the liability was certain, the Government’s intention was clear at the point of going out to consultation. Furthermore, the proposals in the Bill are very much at the modest end of the spectrum of options explored within that consultation document, so it does not seem unreasonable that the insurers might well have foreseen the liability, or the cost, that they are now going to face.

Given the speeches today from my noble friend Lord Howarth of Newport, who made a very persuasive case, as did the noble Lord, Lord Alton, and the questions from the noble Baroness, Lady Masham, and my noble friend Lord Wills, not to mention the widespread concern about this point right across the House at Second Reading, if the noble Lord wishes to persuade the Committee and ultimately the House that he is to have a cut-off date for people coming in, I think that he has his work cut out to make that anything later than 10 February.

Perhaps the Minister can try to clear up a few other questions for me. First, in letting us know the source of this constraint or requirement to reserve or not reserve, can he explain how that affects the date at which an insurer could reserve and, if so, whose decision is it? Secondly, do the Government have any evidence that insurers have in fact been reserving since July 2012, the point at which the Minister is confident they were clear as to the liabilities? Finally, if the Minister is not willing to share legal advice—and I may yet be surprised on that front—can he tell us if the Government have a concern that they could be exposed to legal action were they to impose a requirement other than a July 2012 date? That would be helpful.

I remain pleased that the Government are acting on this matter and I appreciate the Minister’s commitment to it. However, as my noble friend Lord Howarth of Newport said clearly, that does not take away our responsibility in this House to ensure that the legislation is the best it possibly can be.

[Lord James of Blackheath]

Perhaps the Minister will allow me to make one last entry into this debate. I believe that I can answer part of the question asked by the noble Baroness, Lady Sherlock. I am probably the only person in this Room who has ever made a financial provision for asbestosis. I did so on the last day of December in 1998 when I signed off the creation of Equitas; £12.8 billion of assets were locked in an investment fund put together by Warburg’s, with the countersignature of the Bank of England on it, so it was pretty good. The £12.8 billion has been sitting there and can be used only for each category of settlement of claim. One category is labelled asbestosis. I left £6 billion in there, but it is £6 billion with an annual growth rate of 6%.

When Equitas was sold for a knock-down price to Warren Buffett’s Berkshire Hathaway in 2009—I hasten to add, not with my approval—he took over all the asset reserves that were left. So even after Equitas had traded for 13 years, he got a residual balance of £8 billion of my original £12.8 billion—still growing at 6% per annum. My calculation at that time was that he was left with £5 billion for asbestosis. But the £5 billion effectively included a great deal of unidentified claims, because it was largely rolling up the reinsurance claims around the world. It is very incestuous, this claiming business: everybody insures each other and they come up with these collective figures.

At the moment, my estimate is that the global reserves for asbestosis of all the insurance companies in the world are £65 billion, including all the reinsurance markets around the world as well. But they do not expect that that £65 billion will be paid out. Let us suppose that you settled Turner & Newall for £1 billion—you will not, but let us suppose you did. You would take £1 billion out of the Lloyd’s of London reserve of £5 billion and you would have £4 billion left. But immediately you would have wiped out the consequential reinsurance demands down the chain, so the whole industry would write back as profit something in the region of £15 billion to £20 billion of released reserves.

We have a huge potential gift to the insurance industry here and we must not give it away too cheaply. We can screw this insurance industry into paying what it long since has deserved to pay. Why has it not settled so far? Right through the six years of the collapse and rescue of Lloyd’s of London, the great myth was that there was a massive amount of claims arising in the USA that we had insured and that those claims were largely spurious because they had used television advertising to get people to join up. You did not have to have any illness or even to have been in an asbestos building; you were just told, “Sign up, join in, it is a free lottery ticket”—that was the advertising in America.

We were expecting, having worked at government level and failed, to get the American President to impose strict standards on the American industry to force it to have only legitimate claims. If that had happened, we would have taken billions out of our liability and saved Lloyd’s of London without the need of Equitas. It never happened, but then up comes Warren Buffett and buys it for a knockdown couple of billion. I would put a very substantial sum of money on him having a letter in his back pocket from the President, agreeing to write off those claims or to curtail them. He is going to rip out the whole of that profit. We should not sell cheap on this; there is a huge amount out there, which we can get, and we need very much to play hardball.