Insurance Bill [HL]

Lord Sheikh Excerpts

Tuesday 29th July 2014 Grand Committee

[Lord Sheikh (Con)]

My Lords, at the outset I make the point that I very much support the provisions in the Bill, which has been welcomed by all sides of the insurance industry, including insurers, insurance brokers and their trade associations. The Bill is also supported by the Chartered Insurance Institute. I commend the Law Commission and the Scottish Law Commission for the considerable, valuable work that they have undertaken, which has resulted in the Bill being presented in your Lordships’ House. Businesses are expected to benefit by about £100 million over the next 10 years, as there will be less litigation and transaction costs will be reduced.

The United Kingdom has led the world in the field of insurance. The London market is well respected globally. The market is well known for its ability to be innovative, and it provides cover for a very wide range of risks. Some of the risks that it accepts and continues to cover are unusual, and the market is therefore unique. The market is made up of Lloyd’s, British and foreign companies. Britain’s insurance industry is a major success—employing more than 300,000 people across the country—and the market generates considerable invisible earnings, which help the country to balance its books.

At this juncture, I should like to state that I have business interests in insurance. I have been president of the Insurance Institute of Croydon and a director and regional chairman of the British Insurance Brokers’ Association.

Insurance law was developed in the 18th and 19th centuries but was codified in 1906 with the enactment of the Marine Insurance Act 1906. Although the codified Act related to marine insurance, its provisions applied to other types of insurance, as the Act brought together common law principles. The 1906 Act was enacted when the United Kingdom was expanding its insurance activities, and the legislation worked in favour of insurers. The insurers were granted wide powers. They have been able to repudiate liability under certain circumstances and their refusal to pay such claims was unfavourable to the policyholders. A number of overseas countries have modified the legislation and the insurance contracts issued by these countries are more customer friendly. It is therefore important for us to reform our legislation in order that we can maintain our prime position in the international insurance market. We can abolish clauses of the Marine Insurance Act 1906 only by primary legislation; hence, we need to introduce and pass this Insurance Bill.

At present, when an insured enters into a contract with an insurer, he is not sure whether a claim arising in the future will be dealt with adequately. When I started writing insurance business in the London market, I used to have a face-to-face meeting with the underwriter. Before my meeting with the underwriter, I used to write brief details of the risk on a slip, which the underwriter initialled, setting out the terms on which he would accept the risk. The world has now moved on. There are new systems and sophisticated data analyses, and we therefore need to reform the legislation relating to insurance.

Looking at the Bill, I welcome the fact that it provides clear definitions of “consumer insurance contract” and “non-consumer insurance contract”. Part 2 refers to the “duty of fair presentation”, which applies to non-consumer insurance contracts where most of the problems arise. I am pleased that, in regard to consumer insurance, the Consumer Insurance (Disclosure and Representations) Act 2012 applies, and the policyholder needs only to answer the insurer’s questions carefully and honestly.

With regard to non-consumer insurance, the duty of disclosure is set out clearly in the Insurance Bill and has two parts. I note that the Bill makes clear what the insured knows or ought to know, and this clarification will help the insured and the insurer. Under the Marine Insurance Act, any breach by the insurance broker fell on the insured, not the insurance broker. This is unfair, and I welcome the change so that the insured will not be required to know what the broker has learnt from sources other than the policyholder. I also welcome the remedies which are set out in the Bill in the event of breach of the duty of fair presentation. I emphasise that breaches of utmost good faith have previously resulted in disputes between insurer and insured, and I hope that the situation will now improve.

Part 3 relates to warranties. There have been problems relating to claims where it was felt by the insurer that there had been a breach of a warranty. Any warranty must be complied with strictly, whether or not it is relevant to the circumstances of the loss. I always felt that the application of warranties was, in certain circumstances, unfair and a more common-sense approach could have been followed in instances where the wording of the warranty does not have any bearing on the circumstances of the loss. Clause 9 relates to the application of warranties, and Clause 10 explains the situation where there is a breach. I welcome both clauses.

Part 4 discusses issues relating to fraudulent claims. Fraudulent claims are a major issue and are indeed a very serious matter. Fraudulent claims arise in all types of policies. They could, for example, relate to someone pretending that he or she has lost money while travelling overseas, and the amount involved may not be much. On the other hand, there are serious claims related to arson or staged motor accidents where there are allegations of whiplash injuries. Some people have benefited by making fraudulent claims, which result in higher premiums being charged for all policyholders, and honest policyholders therefore suffer. In 2013, there were nearly 120,000 fraudulent claims which resulted in payments of more than £1.3 billion. It is felt that fraudulent claims are easy to commit, and unfortunately the police do not take effective action where it is established that the claim is fraudulent. The industry therefore needs protection. It is understood that we cannot eliminate fraudulent claims, but we must take action to alleviate the problem.

Clause 11 sets out remedies where there are fraudulent claims. The Bill does not define “fraudulent claims” in statute, and the matter will therefore be dealt with under the common law principles. In regard to group insurance policies, I am very pleased to note that under such policies, if a fraudulent claim has been submitted by a member of the group, such a person would be the only one to be penalised and no severe action would be taken against other members of the group.

I would now like to refer to the Third Parties (Rights against Insurers) Act 2010. This Act is important, as it provides rights to an aggrieved party in the event of the insolvency of a policyholder, and the aggrieved party has the right to bring an action against the insurer. Clause 17 of the Bill grants the power to change the meaning of “relevant person”, and I feel that this change is desirable. I hope that the 2010 Act can now come into force.

Let me now deal with the issues where there has been late payment of a claim by an insurer. This has caused some problems, but I am pleased that the issue has not been included in the Bill as the matter needs to be looked into further—there may be legitimate reasons why the insurer is unable to pay the claim promptly. The issue must be fully discussed and assessed, and appropriate provision can be included in future legislation.

Apart from late payment of claims, there are other issues which need further consideration and these relate to the principle of insurable interest and brokers’ liability for payments of premiums. I hope that these issues will be looked into fully and we can legislate on these matters in due course. I support the Bill and I look forward to backing it as it progresses through your Lordships’ House.