§ The Secretary of State for Trade and Industry and President of the Board of Trade (Mr. John Davies)With permission, I should like to make a statement.
As hon. Members are doubtless aware, the directors of the Vehicle and General Insurance Company Ltd., announced yesterday evening their intention to petition the court for the compulsory winding-up of the company and of five of its subsidiary companies which carry on largely motor insurance business.
The names of these companies are as follows:
Automobile and General Insurance Co. Ltd.,
General and Commercial Motor Insurance Co. Ltd.,
Metropolitan General Insurance Co. Ltd.,
Transport Indemnity Insurance Co. Ltd., and
World Auxiliary Insurance Corporation Ltd.
In order to comply with the requirements of the Road Traffic Act 1960, motor insurance policies must be issued by authorised insurers who are carrying on motor vehicle insurance business in Great Britain. The policy-holders of the companies in question should, therefore, take out new policies with authorised insurers if they wish their cars to continue to be used on the roads. Both the directors and 1399 the British Insurance Association have already advised policy-holders to obtain cover from other insurers.
I understand that the petitions for winding-up are being presented today, but I cannot forecast the time required by the court to deal with them.
The financial affairs of the company and its subsidiaries have been under close consideration for some time by the Department which has been frequently in touch with the directors. The Department, in compliance with Section 68 of the Companies Act, 1967, on 24th February duly served the requisite notice of 30 days on the companies concerned of the intention of the Department to issue directions restricting the companies from issuing new policies or renewing old policies.
§ Mr. BennThe statement which has just been made by the Secretary of State reveals a very serious situation, not least for its general effect on confidence.
May I ask the right hon. Gentleman these questions? When did the right hon. Gentleman's Department start investigating the affairs of this company? Did it get adequate information in time to intervene? If not, what was the delay? Was it because information was not available?
Is the right hon. Gentleman satisfied with his powers under the 1967 Act? Exactly how many vehicles are affected? What exactly is the position of those with policies from this company? Will the inquiry be published in due course?
§ Mr. DaviesMy Department has been uneasy about this company for some considerable time. But the uneasiness culminated in July, 1970, when the matter was taken up very vehemently with the company. The discussions and examination of the problem have been continuing since then.
Undoubtedly the inquiry has not advanced at the pace we would have liked. But the right hon. Gentleman will understand that it poses a real dilemma. Once the inquiry becomes public knowledge the whole of the prospects of the company are in any case undermined, so that one has to deal with the pursuit of the inquiry with some care and responsibility. Nevertheless, because of its poor progress, in November last year the Department told the company that an 1400 inquiry under Section 109 of 1967 Act would take place unless the requisite information was forthcoming. It was, and as a result fears arose last month in my Department that this company was not backed by adequate resources to meet its liabilities. This occasioned it to give the company 30 days' notice that it would have to instruct it to cease issuing cover.
That deals with the period over which the inquiry and the discussions have been going on. As I say, adequacy of information was not entirely satisfactory in the early stages.
The 1967 Act gives the powers required, but, as I have mentioned, we are carrying out a thorough-going look at the whole range of company law requirements. This will not escape and will obviously be somewhat intensified by this experience.
I cannot tell the right hon. Gentleman about the exact number of vehicles involved. I am not aware of the number, but I have heard that it runs into hundreds of thousands.
An inquiry will certainly be undertaken if the basis for one can be established. I am looking at Section 165 of the Companies Act to see whether inadequate information has been made available to the shareholders by the company, which would then permit me to make such an inquiry.
§ Mr. BennIs the right hon. Gentleman really satisfied with the position which he has reported to the House? From the right hon. Gentleman's supplementary answer, in July his Department began to have anxieties which culminated in inquiries in November and a collapse in early March. Surely the object of the 1967 Act was to prevent such a thing happening. For the right hon. Gentleman to say that he was not able to move for fear of shaking confidence in the company when the outcome is that many people have lost more money, reveals a great failure of the system in that it really did not work. Surely the right hon. Gentleman ought to be able to tell the House how many vehicles are insured, since he must have been in contact with the company throughout the six or eight months in which discussions were going on.
§ Mr. DaviesIt is always fairly easy, with the benefit of hindsight, to say that 1401 this should have been the case. The question to which the right hon. Gentleman should address himself is the wisdom of disturbing confidence in a concern which carries a large amount of insurance of this kind if such lack of confidence were not fully justified. It is that particular concern which one has to maintain in mind—and correctly so.
The right hon. Gentleman asked whether the 1967 Act provided me with the power which I thought necessary to keep this kind of matter under scrutiny. I think so. Nonetheless, I would have it scrutinised again within the general examination we are making. This ought to satisfy the right hon. Gentleman. I am satisfied that a reasonable and careful examination has been made, and that the Department moved at the appropriate moment and that it would have been in doubt to have moved before.
§ Mr. Hugh FraserAlthough I agree with my right hon. Friend about the immense difficulty of the question of confidence in these matters, could he possibly consider strengthening that part of the Board of Trade which has to deal with this—
§ Mr. William HamiltonThe hiving-off part.
§ Mr. FraserThis is not funny at all—
§ Mr. HamiltonNo, it is not.
§ Mr. FraserWould my right hon. Friend consider that, and would he see fit to have a report given to the House if there were any question of dilatory action?
§ Mr. DaviesIf it is established that an inquiry under the appropriate section of the Companies Act is carried out, I shall no doubt have the opportunity to report to the House in due course.
§ Mr. ThorpeWhat is the position of a policy-holder who either has a claim pending against him or is making a claim against the third party?
§ Mr. HefferHe has lost his money.
§ Mr. ThorpePerhaps I might be allowed to continue and address myself to the Minister. Does such a man rank in the bankruptcy as any other creditor, or is there some fall-back cover arrange- 1402 ment, such as the Law Society provides, for the British Insurance Association? If there is not, should there not be so in future?
§ Mr. DaviesThere is such a fall-back cover, but it extends only to the cover of that minimum part of motor insurance which is occasioned with third party premium policies. The Motor Insurers' Bureau does make such a cover in respect of these liabilities. Liabilities in excess of that, which therefore go beyond the minimum cover required by law, will rank as those of ordinary unsecured creditors.
§ Sir F. BennettI was going to ask an almost identical question to that of the right hon. Member for Devon, North (Mr. Thorpe). Would the Minister care to remind the House that the fund which is available for this purpose amounts to no less than £5 million from the British Insurers' Association in this matter, so there is no question of third party claimants losing out in this matter?
§ Mr. DaviesI am grateful for that elaboration. However, it is right to underline the fact that there are claim elements which may be at the moment in force and which will only rank for dividend along with others.
§ Mr. CarterIs the right hon. Gentleman aware that in the last five years or so almost 4 million motorists have lost their cover when insurance companies have gone bankrupt? Does he not think it time that he took action on the basis of a letter which I sent to him last July, urging his Department to carry out an inquiry with a view to bringing forward legislation in order to stop the worst ravages of competition?
§ Mr. DaviesI have already said that, among the other inquiries which I am making into company laws generally, I will not of course exclude the issues concerning insurance companies, and this should cover that point.
§ Sir G. NabarroWill my right hon. Friend bear in mind that by far the most anxious aspect of this collapse is the fact that the particular company has grown by 70 times in terms of turnover in just 10 years, which is a rate of growth far greater than in any other comparable company? Has the Board of Trade or 1403 his Department any facility for looking at the accounts of insurance companies at regular intervals, say every 12 months, in order to ensure that they are solvent and that they have adequate reserves to meet their commitments?
§ Mr. DaviesOf course, I have the right of view of company accounts of all kinds. As regards insurance companies especially, under the provisions of the 1967 Act, and in certain circumstances, I can institute an inquiry which goes very much deeper into the precise nature of the assets which underlie the situation of the company in face of these claims. It was indeed the intention of so doing which provoked this company to putting us in a position to be able to issue the notice which we did last month.
§ Mr. DarlingWould the right hon. Gentleman agree that the Board of Trade has sufficient powers to move in quickly and to intervene quickly in the affairs of an insurance company if there is a risk of insolvency? Would it be correct to say that in this case part of the delay may have been due to the fact that this insurance company was a member of the British Insurance Association? If this is so—it may not be—would it not be advisable to ask that association to keep the affairs of its member companies under closer and more regular scrutiny, so that membership of the association is not taken to be a guarantee of solvency? They advertise it as such.
§ Mr. DaviesI do not think that the situation of the Department in relation to an individual company is affected by its membership or not of the British Insurance Association, but I take the point. The B.I.A. sets out to be a trade association and not a guarantee organisation. It should therefore not be mistaken in that rôle. Certainly, it is not so mistaken by my Department.
§ Mr. BiffenIs my right hon. Friend aware that the fact that his own confidence in this company was such that in July he could make, in his own words, "very vehement" representations, must lead many hon. Members to have very serious doubts on the adequacy of the law to enable him to take the necessary measures to protect policy-holders? Therefore, could he look again at the present state of the law and possibly come 1404 back to the House, after due consideration, to let us know whether he thinks that any changes would be desirable?
§ Mr. DaviesI would certainly reconfirm to my hon. Friend that that is my intention. The expressions that I used were "uneasy" in July and "vehement representations" in November.
Mr. Bob BrownWould the right hon. Gentleman not agree that it is becoming increasingly obvious that every morning many thousands of motorists leave home not knowing whether when they return they will be covered by motor vehicle insurance? Does he not now believe that it would be right and proper, even though the Government probably for doctrinaire reasons would not want to nationalise the British insurance industry, that the motor vehicle cover should be carried by the State?
§ Mr. DaviesNo, I would not agree with either of those remarks—certainly not with the latter and emphatically not with the former.
§ Mr. TapsellIs it not rather disquieting that a number of other insurance companies should have chosen this morning to announce an increase in their motor insurance premiums? Would one not expect insurance companies to take a rather longer view of what is the profitable level of insurance? Is my right hon. Friend satisfied that those who are now in a hurry to transfer their insurance will not run into unreasonable difficulties or tariffs?
§ Mr. DaviesThe tariffs of the insurance companies are a matter for them and not for me. I see no particular importance in the coincidence of the increases stated this morning.
§ Mr. AshtonBut if the State compels motorists to be insured, as we now do, surely the State has a moral obligation to provide some safeguards and securities. Should we not now be looking at the protections to which motorists are entitled, possibly setting up a scheme in competition run by the State?
§ Mr. DaviesNo, I have great confidence in the British insurance industry. I would remind hon. Members that this industry, which at the moment apparently is a matter for obloquy, is a very big contributor to our invisible account.
§ Mr. McCrindleThere is no doubt that one of the most disquieting features of the situation is that of the man who, having paid his renewal premium last month, now finds, after only a month has gone by, that he has to replace the cover once again. In the circumstances, would my right hon. Friend consider the imposition of a surcharge on a motor insurance policy, thereby enabling the Motor Insurers' Bureau in an event such as we have experienced this morning to meet not only these residual third party claims but all claims, at least until the expiry of the policy for which a man has paid?
§ Mr. DaviesNo, Sir. The Motor Insurers' Bureau properly provides cover for that part of the insurance which is obligatory. I believe that this is the proper course to take, though I can clearly see some advantage, of a purely commercial kind, in relation to what my hon. Friend has suggested.
§ Mr. AtkinsonAs it is essential for motor-car accessories to comply with minimum British Standards Specifications, is it not time that insurance complied with British Standards Specifications, too? If the right hon. Gentleman agrees with this proposition, should it not be implemented by means of a State scheme so as to give a guarantee of security and a fair deal to motorists?
§ Mr. DaviesThe hon. Gentleman seems to be unaware that there is a stipulated specification in relation to motor insurance and that it is complied with.
§ Mr. MoateWould my right hon. Friend make the position absolutely clear to motorists who have been driving with policies issued by these companies? Is he aware of a Press report stating that a special arrangement had been made for a 14-day period by the B.I.A.? Would he confirm that no such arrangement has been made and that anybody driving with such a certificate would be in breach of the Road Traffic Act? In relation to the Motor Insurers' Bureau, would he confirm that the policy-holder is still in the first front line of liability and that when my right hon. Friend uses the term 1406 "third party" he means purely liability for bodily injury?
§ Mr. DaviesMy hon. Friend is correct in the final part of that supplementary question. I am, of course, referring to bodily injury. As for the exact position, technically speaking people who are insured with these companies for these purposes are covered, in theory, until the winding up order has been granted. However, I think that this is a technical situation which should not in any way mask the need, to which I have referred, for such motorists urgently to seek insurance elsewhere.
§ Mr. BennWill the right hon. Gentleman now publish the details of all the relations between his Department, himself and the company since last July so that we can assess for ourselves not only the action he has taken but the adequacy of the law, which is there principally to protect policy-holders, many of whom now find themselves in an almost intolerable position for the reason given by, among others, his hon. Friend the Member for Faversham (Mr. Moate)?
§ Mr. DaviesI will certainly consider that, but in the light of the conclusion I reach as to the practicability of instituting an inquiry under Section 165 of the Companies Act.
§ Mr. BennWe are talking not about an inquiry but about the right hon. Gentleman's exercise of his Ministerial responsibilities. That has nothing to do with an inquiry, though we hope there will be one. Will the right hon. Gentleman make available, as part of his accountability to the House, the details of what he and his Department have done in respect of this company in the last six to eight months?
§ Mr. DaviesThat is clearly involved with any inquiry that I might make—[Interruption.]—and I therefore have nothing to add to the assurance I have already given.
§ Mr. SpeakerOrder. We cannot debate this matter now.