Consumer Insurance (Disclosure and Representations) Bill [Lords]

Jonathan Evans Excerpts

Tuesday 6th March 2012 Commons Chamber

[Chris Leslie]

In that case, he will feel that it is an absolute necessity to ensure that his llama always has pet insurance. He may well find that under the Bill, rather than simply taking out a generic insurance contract, he is asked a series of specific questions about his pet llama. They could include how long he has kept the llama, its age and the environment in which it is kept. He may well think to himself, “Well, this insurance could become quite expensive,” and feel that of all his insurance products, he can leave that one and take a risk. Poor old llama—it may well just have to take its chances.

[Jonathan Evans (Cardiff North) (Con)]

Before the hon. Gentleman frightens my hon. Friend the Member for Lichfield (Michael Fabricant) away from insuring his llama, I will follow my hon. and learned Friend the Member for Sleaford and North Hykeham (Stephen Phillips), who declared his interest, and point out that I am a former director of NFU Mutual. That farming insurance company would find no difficulty whatever in providing insurance for a llama.

[Chris Leslie]

I think a deal has been transacted on the Floor of the House. However, under the provisions of the Bill, a series of disclosures may be requested from hon. Members seeking such insurance.

My point is simply that we need to know the impact that the Bill will have on pet insurance and other discretionary insurance, but also, perhaps more importantly, on essential types of personal insurance that we all want our constituents to have, such as household insurance, flood risk insurance and motor insurance. In those cases, there is less wiggle room for individuals to decide not to take out insurance.

There are separate discussions to be had in another place about the problem of certain drivers thinking, “Well, the fine that I get for driving uninsured is less than the cost of motor insurance, so I will take my chances and drive uninsured.” In my view, the penalty for driving uninsured needs to be higher than the cost of getting insurance. That is a pretty straightforward point, but you would be surprised, Mr Deputy Speaker, by the small fines that are sometimes issued to people who drive uninsured. I am sure that hon. Members will know of cases in which constituents have unfortunately been involved in accidents caused by uninsured drivers. When those uninsured drivers are prosecuted the fines are a pittance, which sends the message, “Why bother with insurance?” We must return to that issue, but it is a moot point whether it would fall under the scope of a review under the new clause.

Mandatory types of insurance are particularly important in the Bill. I can foresee circumstances, particularly with car insurance, in which the insurance sector feels that it is not getting much return. Many of our constituents howl with derision at the sheer expense of motor insurance—the AA recently said that it rose by about 16.4% in 2010. The Bill will make provision for the disclosure of certain extra pieces of information, even though people have no choice but to take out motor insurance if they want to drive; it is a legal requirement.

People will be surprised to find that even though motor insurance costs are escalating—that problem needs to be tackled in a number of ways—the insurance sector says that motor insurance is not massively profitable. The Association of British Insurers has described it as one of the most challenging products for insurers. I believe it has stated that premiums amounted to £10.7 billion and claims to £10.3 billion in 2010, so often the margins are not particularly great.

It is difficult for hon. Members, as non-experts in that trade, to know whether insurance companies are making significant profits, but let us take them at their word that they are not doing so. I can envisage a situation in which insurance companies say, “We want to back out”—pardon the pun, Mr Deputy Speaker—“of the motor insurance trade.” They might feel that in order to do so, they will deter new contracts for motor insurance. One way of doing that would be by placing a series of extra hurdles in front of customers wanting to obtain such insurance.

Many young drivers will know to their cost how difficult it can be to get insurance cover for their vehicles. I do not know whether the Minister has a driving licence—

--- Later in debate ---

[Stephen Phillips]

I am not for a moment suggesting that the Bill should not be scrutinised.

Insurance companies ought to pay claims that they have not paid previously as a result of an inadvertent misrepresentation or non-disclosure—everyone wants that change, which is the reason for the Bill. The only way in which the costs of the types of insurance contract that the Bill covers will increase is if claims that ought previously to have been paid—legitimate claims—are paid. Disreputable insurance companies—I venture to suggest that there is none left in this country—currently might decline to pay a claim on a specious basis. For that reason, the review proposed in the new clause is unnecessary. I anticipate that the Government will not wish to carry it out, and the hon. Gentleman is rather hoist on his own petard because of the argument he has made in support of the Bill.

[Jonathan Evans]

My hon. and learned Friend will know that arrangements are in place for the Financial Ombudsman Service to look at the circumstances to which he refers—when an apparently proper claim is declined by an insurance company on specious grounds. Notwithstanding the 1906 Act, the financial ombudsman has, under the “treating customers fairly” provisions, which were put into operation by the Financial Services Authority, many times ordered a payment to be made. Is that not one of the reasons for the Bill? The situation will be that legislation rather than the financial ombudsman will be involved in righting wrongs.

[Stephen Phillips]

My hon. Friend makes a valid point. The insurance industry has long been regulated and the ombudsman has long been able to make declarations, but there are circumstances in which one cannot go to the ombudsman—for example, if the financial value of the contract is too high. There are circumstances in which the ombudsman will not intervene—for example, if legal proceedings between the consumer and the insurance company or, if Lloyd’s, some other insurer, are already afoot. In addition, experience dictates that the financial ombudsman is not, for example, particularly au fait with some of the more obscure parts of insurance law with which the Bill grapples, such as those parts of common law that deal with basis clauses and the turning of representations into warranties when made the basis of the contract.

I hear, then, what my hon. Friend the Member for Cardiff North (Jonathan Evans) says, but it is fair to say that the Bill is not only welcome but contains proposals that the Law Commission has properly considered and requires no review of the type that the new clause contemplates. For those reasons, the new clause is, in my respectful view, misconceived; and for those reasons, I am sure that the hon. Gentleman will not push it to a vote.

[Mr Christopher Chope (Christchurch) (Con)]

I was rather attracted to the new clause tabled by the hon. Member for Nottingham East (Chris Leslie). The idea that the House should engage in post-legislative scrutiny is a good one and accords with good legislative practice. That, effectively, is what he is saying. He is not saying that the House would necessarily be involved; he is saying that the Treasury, the Department sponsoring the Bill, would have an obligation to assure everybody about the impact of legislation. This could be an important precedent. Perhaps, in due course, it will be part of official Opposition policy to provide for post-legislative scrutiny.

This area of insurance is extremely complicated and, as the hon. Gentleman said, very expensive for many people. The reason it is so expensive is that there is an enormous amount of fraud, particularly in relation to motor accidents. We heard recently about the high incidence of claims for whiplash. Almost everybody involved in even the most minor bump is encouraged to claim on their insurance for whiplash injuries, and invariably the insurance companies end up paying a lot of money to prevent what they would describe as nuisance claims from going to full litigation. Effectively, they are held to ransom, and not surprisingly it is the customers of those insurance companies who end up paying the bill through higher premiums.

That situation is particularly pernicious with compulsory insurance, which motor insurance is—third party, fire and theft, and so on—for people seeking to drive a motor vehicle on the road. It is particularly tough on young people, and has been made tougher by this ludicrous European legislation declaring that insurance companies cannot take account of whether a young girl belongs to a class group with a lower claims rate than a young man who belongs to a group with a higher claims rate and who therefore will face additional costs.

As a consequence, the premiums for young women have increased significantly faster than premiums for young men. I suppose I have a family interest, because my daughter has recently acquired her first car and taken out her first insurance policy. I can reconfirm what the hon. Member for Nottingham East said. Obviously, she did not have a no-claims record, because she did not have any driving experience, and in the end, the best deal was from a company offering her 10 months’ insurance, which gave her the prospect of getting a no-claims discount after 10 months rather than after a year.

[Jonathan Evans]

There might have been another reason for the 10 months: the European decision to which my hon. Friend referred comes into operation in 10 months' time.

[Mr Chope]

My hon. Friend is ahead of the game. I was interested in his earlier intervention declaring his knowledge and experience of one particular insurance company—a company from which we sought a quote but which was extremely reluctant even to consider providing insurance cover at a reasonable price. The reason was that it did not want to engage in this market and had recently changed its policy. It is a pity that this mutual insurance company has decided that the pressures are such that, even for long-standing customers, it is not prepared to take on, at a reasonable price, the sort of risk to which I have referred.

It is easy to go unnecessarily wide on such an issue—perhaps I was led astray by the hon. Member for Nottingham East because of the width with which he introduced his new clause. However, I look forward to hearing the Minister respond to the idea of post-legislative scrutiny. Perhaps, Mr Deputy Speaker, if she could fit that point into the scope of her response to this short debate, she will say whether it might become Government policy to make post-legislative scrutiny the norm rather than the exception. I hope, at least, that she will come forward with some strong and persuasive arguments so that I do not have to join the hon. Gentleman in the Lobby in support of new clause 1.

--- Later in debate ---

[Jonathan Evans]

You will not hear any from me, Mr Deputy Speaker.

I wish to detain the House briefly in order to place on record the contribution to this Bill of the all-party group on insurance and financial services, which I chair. The group met on 1 December 2010 at the request of the consumer bodies to which my hon. Friend the Minister referred. I am glad the shadow Minister referred to multiple sclerosis, because the Multiple Sclerosis Society was one of the groups that asked us to examine this area of the law.

We were told that this area of the law has, in fact, been under review since 1980. In the 1980s and 1990s the shortcomings of the operation of consumer law were apparent. A scoping paper was produced in 2006. The Law Commission then produced its proposed legislation, but it was not enacted, despite the fact that in 2009 a request to do so was made to the last Labour Government. The reason for that was—[Interruption.] No, this is not a party political point. The reason was that the Association of British Insurers had responded in a letter, expressing its broad support for the recommendations but adding that there were still issues that needed to be addressed

“before we could support the Bill entering the process for uncontroversial Bills.”

That sets the context for the all-party group’s contribution. We had our meeting on 1 December, and we heard from Mr David Hertzell, the law commissioner who is the author of this legislation. He also attended the special Public Bill Committee that was set up as part of this process. We also heard from Mr Peter Tyldesley, a senior lecturer in insurance law at Bedfordshire university, a consultant to the Financial Ombudsman Service and a lawyer at the Law Commission. Both of them told us it was necessary to have the buy-in of the ABI before we would be able to make use of the uncontroversial Bills process.

This is the first Bill that has gone through that new process. As a result, there was no Second Reading on the Floor of the House and there was a mere 29-minute Committee sitting, and in the Lords there was a special Public Bill Committee. That was possible because the legislation is uncontroversial.

Following our meeting with David Hertzell and Mr Tyldesley, we contacted the ABI and it came back within three days clarifying that its letter had been misinterpreted, and that as far as it was concerned the Bill could proceed on the current basis. Within a few weeks, that happened.

As there is a review taking place of all-party groups, I wish to stress the constructive contribution that this all-party group made in this instance. I pay tribute to my colleagues on that group for their contribution to this excellent measure.