Consumer Insurance (Disclosure and Representations) Bill [HL]

Lord Higgins Excerpts

Monday 13th June 2011 Grand Committee

[Lord Higgins]

My Lords, I begin by raising one or two questions of a procedural nature. I am not clear whether I am speaking in the gap. My understanding is that there is virtually no precedent for the procedure that we have adopted today other than for one previous Law Commission Bill. It is not the least bit clear whether this is a Second Reading. My understanding is that it is not. We are considering a Second Reading in Committee. If it is in Committee, any noble Lord is entitled to speak without being on a speakers list, but I understand that there is a speakers list. Perhaps at a later stage either the Lord Chairman or my noble friend, if he has advice from the Clerk, could make the position clear.

Further, in relation to the statement made by the Lord Chairman at the beginning, as I understand it a Second Reading will be moved in the Chamber in the normal way. I am not clear whether that will be debateable. Perhaps we can have some clarification on that. Presumably, there will then be Committee and Report stages later on. At the moment, there seems little precedent to clarify the position on any of this. However, on the assumption—it may be an heroic assumption—that I am speaking in the gap, perhaps I might raise one or two points.

I first congratulate my noble friend on the helpful way in which he has had private discussions ahead of this meeting. I also congratulate those who prepared the documentation for the Bill, particularly the Explanatory Notes, with the excellent and helpful diagram. There is confusion, as my noble friend Lady Noakes implied, between the situation with the Bill and European legislation. Of course, we do not have a single market in insurance in the European Community. Consequently, some parts seem to be dealt with by directives and some parts by national legislation. That takes me a little wide of the remarks that I want to make, but I congratulate my noble friend and, indeed, the Treasury on arranging to get this Bill into the programme. It certainly would not normally get in, given the pressure on parliamentary time.

The Bill is clearly very useful. It clarifies the position considerably, except in one respect. I discovered only this afternoon the massive tome that is the Law Commission and Scottish Law Commission report. At paragraph 10.29, it raises the question of whether courts should follow industry guidance and it says at paragraph 10.30 that there is confusion as to whether the courts follow industry guidance or not. Parliamentary counsel has drafted a provision saying:

“The insurer may not take advantage of any remedy provided for under this Schedule if, or to the extent that, it would be unreasonable to do so according to written guidance generally recognised by insurers providing the type of insurance in question”.

That seeks to reconcile the position between codes of practice and legislation, which in many ways this seeks to avoid. Anyway, when I look at Schedule 1, I cannot find that particular clause, which appears to have been drafted but not included. If it is not included, this point seems still to be left in some confusion.

I will be imposing on the tolerance of the Committee if I go on much longer. However, if this is going to be done in future—and there is a strong case for using this procedure on Bills of this kind—we need to be clear on what the procedure is.

--- Later in debate ---

[Lord Sassoon]

I am grateful for that, because some of this has been a touch technical and some rather fundamental. I will talk about the process in a moment, as my noble friend Lord Higgins asked about the procedure for Law Commission Bills. The fact that it is a Law Commission Bill and has, as my noble friend pointed out, been the subject of a big report subsequently consulted on by the commission means that we can be fairly confident that all the fundamentals of the law have been considered in great detail. Otherwise, this Bill would not be going through this procedure. This is the first Bill to go through the Law Commission procedure since the procedure was made permanent last year. I am pleased that, as my noble friend Lord Higgins recognised, this innovation has allowed for parliamentary time to be found for this legislation, which would clearly otherwise have been difficult.

On what happens next, the important thing is that this is not in any sense a fast-track procedure, because the Bill will follow the usual parliamentary process but for two exceptions. First, the substantive Second Reading debate is held in Committee—that is what we are doing this afternoon—rather than on the Floor of the House. Secondly, the Committee stage will be, as the noble Lord, Lord Eatwell, said, taken by a Special Public Bill Committee, which is indeed empowered to take evidence from witnesses as well as to conduct the usual clause-by-clause examination of the Bill. I have no present intention to suggest from the Government’s side that we should call witnesses, but that is allowed for in the procedures. For the benefit of my noble friend, I draw the Committee’s attention to paragraph 8.44 of the Companion to Standing Orders, which says:

“The House agreed in 2008, on a trial basis, that second reading debates on certain Law Commission bills should be held in the Moses Room … The Committee debates the bill, and reports to the House that it has considered the bill. The second reading motion is then normally taken without debate in the House, though it remains possible, in the event of opposition, for amendments to be tabled or a vote to take place on the motion. Law Commission bills are normally committed to a special public bill committee”.

I hope that that is as clear as it can be. I do not know whether that allows for speakers lists, gaps and things this afternoon, but I am grateful that my noble friend got to his feet and contributed to the discussions in his usual lively way.

As I said in opening, we believe that this Bill is necessary in order for the law to catch up with best practice. It will also ensure that the legal duty of consumers is reasonable and clear. In answer to the questions asked by the noble Lord, Lord Eatwell, in this area, I am not sure whether it is right to look on it in the context of shifting the onus of good faith. It is clear that it is up to the insurer to ask the questions and to the consumer to answer them, with the potential consequences of misrepresentation in the way that I outlined in opening. The effect of this is to shift the burden between the insurer and the consumer in the consumer’s favour as against the law as it stands in the 1906 Act. That is entirely appropriate.

It is worth reiterating in this context—I think that this is the point on which my noble friend Lady Kramer asked for confirmation—that any information that the consumer misrepresented or failed to disclose must be proven to have been relevant to the content and/or the price of a policy before the insurer is entitled to a remedy. There is a shift in the legal position, but it is a shift towards a position that is in line with industry best practice and the standards that are currently imposed by the Financial Ombudsman Service.

I am particularly grateful to my noble friend Lady Kramer for drawing attention to a shocking but classic case of the sort that this Bill is intended to obviate and to ensure does not happen in future. The case that she put forward was interesting because it was a question not of unreasonable loss to the consumer—as I understand it, after a two-and-a-half-year struggle, the FOS found in favour of the insurer—but, as was explained to us, of the very real distress and the time and effort that had to go into getting to the right answer. That should be eliminated in similar situations as a result of this legislation.

As I said in opening, the industry will benefit, as we anticipate a reduction in the costs of handing complaints internally and with the ombudsman. In that context, I can confirm to my noble friend Lady Noakes that we will be mindful of the burdens of implementation on the industry. She rightly and helpfully pointed out the various other initiatives that will bite on training, information and standards of scripts, whether in relation to the retail distribution review or simplified advice. Her points are well taken.

My noble friend Lord Higgins referred to paragraph 10.30 of the Law Commission’s report, which discusses the pros and cons of giving legal effect to industry guidance. My noble friend quoted from paragraph 10.30, but the report discusses the issue at some length in paragraphs 10.32 to 10.43. The Law Commission decided not to include such a provision for the reasons set out in paragraph 10.38, principally because the role of guidance is different from that of legislation. I think that the discussion is extensive in the Law Commission’s report.

[Lord Higgins]

I am most grateful to the noble Lord. The trouble on these occasions is that the Hansard reporters tend to remove the relevant documents. I am most grateful for his clarification.

[Lord Sassoon]

Good. I, too, am grateful that we have nailed that one.

On the other questions raised by the noble Lord, Lord Eatwell, there is first this difficult issue about permissible questions and specifically questions of gender and race. They are made particularly difficult by the recent judgment of the court in relation to motor insurance. This issue is dealt with elsewhere and not in the Bill, which is solely focused on the transmission of information in the context of underwriting risk. It is not part of the scope of the Bill to discuss questions of discrimination or equalities legislation—nor should it be.

On the definition of consumers and micro-businesses, we discussed informally last week what would happen with respect to the insurance of the foot of a ballet dancer or a footballer. Maybe we could call this the “David Beckham’s foot” question. The Explanatory Notes on Clause 1 define a consumer as,

“an ‘individual’ who is acting wholly or mainly for non-business purposes. Thus the consumer must be a natural person, rather than a legal person (such as a company or corporation). The definition expressly provides for mixed use contracts”—

for example, the insurance for a personal car that is sometimes used for business travel to be defined as a consumer insurance contract. It means that the Bill will not apply to individuals purchasing insurance that is mainly for purposes related to their trade, business or profession, which would clearly be the case in some of the examples that have been discussed.

Lastly, on the cost of insurance, HM Treasury has not made an estimate of the impact of the Bill on insurance premiums. However, we have estimated that the net impact will be savings for the industry—that is, when we take account of the initial training costs and the savings as a result of fewer FOS complaints among other factors. On the basis that the industry should have net savings from this Bill being enacted, there is absolutely no reason to believe that there should be any additional cost passed on to consumers. In relation to the overall cost of insurance, these are relatively small marginal costs but ones that would impact favourably—that is, downwards—on insurance costs.