Enterprise Bill [HL]
Debate between Earl of Kinnoull and Lord Flight
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.