§ '(1) The Secretary of State shall have power to restrict insurance premiums, where the relevant transaction is effected at a time when Part II of this Act is in force.
§ (2) The powers conferred by subsection (1) above shall be exercisable by order, or by notice given to the insurer, or each of the insurers, affected by the notice.
§ (3) An order or notice under this section may make provision for the giving of consents by the Secretary of State to the doing of anything otherwise prohibited by the order or notice.
§ (4) Before making or giving an order or notice under this section (other than one which only removes or lessens a restriction), the Secretary of State shall give 14 days notice to the insurers who would be affected by the order or notice, and shall afford to them an opportunity of making written representations to the Secretary of State.
§ (5) If, in the case of an order under this section, it appears to the Secretary of State to be impracticable to give notice under subsection (4) above to all the said persons, the Secretary of State may instead publish 14 days notice of his intention to make the order in the Gazette and in such other ways as may be prescribed, and shall afford to all those persons an opportunity of making written representations to the Secretary of State.
§ (6) Where an order or notice under this section is contravened, the liability for the contravention attaches to the insurer who charges the insurance premium.
§ (7) An order under this section shall be subject to annulment in pursuance of a resolution of either House of Parliament'.—[Sir G. Howe.]
§ Brought up, and read the First time.
§ 3.42 p.m.
§ The Minister for Trade and Consumer Affairs (Sir Geoffrey Howe)
I beg to move, That the clause be read a Second time.
This is a clause dealing with insurance matters, and it takes account of the special nature of insurance business. It takes account of the extent to which there is already in existence machinery for the supervision by the Government of insurance companies and their conduct.
1289 As the House knows, the Department of Trade and Industry exercises detailed supervision over insurance companies, under the Insurance Companies Acts, specifically for the purpose of maintaining their solvency. The House will also know that there is an Insurance Companies Bill now under consideration in another place to extend and improve that system of control. That control was established and is exercised because of the overriding importance of the stability and effectiveness of insurance companies not only to policy holders but also to third parties.
In the context of the measure now before the House it has been concluded that it would be inappropriate for the insurance industry to be subject to two supervisory bodies, the Department of Trade and Industry, on the one hand, and the Price Commission, on the other hand. That is because there is a need for decisions about price control to take account of and be consistent with the requirements of solvency. Whereas a manufacturer normally knows his costs when fixing his price, an insurance company can inevitably proceed only on the basis of an estimate of what its claims experience will be.
It is against that background of fact that techniques have been evolved over the years within the Department for assessing future liabilities of insurance companies for the purposes of solvency. Inevitably, in order to carry out that work, experienced staff have been gathered together, staff of a quality and with qualifications which are not easy to find. It would not be fruitful or useful, or in the interests of price control or of the community generally, for that staff to be duplicated or dispersed to the Price Commission as well. In addition, there is available in the Department information about the present position of insurance companies which also makes it sensible to combine both functions in the Department.
Lest any hon Member should think that this change can have or is intended to have the effect of letting off insurance companies with any less stringent policy for price control than is applied to other prices, I can assure him that that would be quite untrue. We, too, in the Department of Trade and Industry will need, like the Price Commission, to receive in- 1290 formation about the current state of any given insurance company. But for the most part we shall have that and be receiving it regularly and automatically. In addition, we shall have the capacity to analyse that information with at least as much expertise and, because of experience, probably more than the Price Commission will have. So against a more informed background the control is likely to be more firm rather than less so.
The House will know that the pattern of control of insurance rates during the standstill has been very firm and tight. It will continue on that basis in accordance with the general rules enunciated in the Green Paper. Insurance companies have been required to absorb cost increases until this stage. From now on they will have to work on an allowable costs basis. Increases in scheduled rates will have to be notified and scrutinised. The only other adjustment that would normally be permitted is an adjustment in relation to bad claims experience or in relation to individual policy holders who have particular insurance claims records which would ordinarily justify a change in their premium. That, inevitably, would have to continue.
It is upon the basis that that is the right and sensible way of handling the control of insurance company pricing during the second stage that I commend the new clause to the House.
§ Mr. Ray Carter (Birmingham, Northfield)
I want to deal briefly with the alleged stringency which the Minister says will be applied to motor insurance companies in particular.
We note the fact that the responsibilities that the Department of Trade and Industry now has for solvency will be paralleled with fresh responsibilities for premiums. I remind the Minister that the Bill now in another place came into existence largely because the solvency of one company in particular and of many motor insurance companies in general was found to be insufficient, and, moreover, is insufficient now.
Notwithstanding these new powers, if the margins on which companies are operating are insufficient for solvency, will the Minister direct an insurance company that a premium increase should occur in order to maintain sufficient solvency margins? Presumably that is precisely 1291 the intention of the Bill now in another place.
Regarding the new clause, I remind the Minister that whenever motor insurance companies are approached about increases in premiums, they say—they constantly tell this to the Press and the motoring public—that their business is run at a loss. Most accounts of insurance companies show not only a loss now but a loss that has been apparent over many years. That being so, one is entitled to ask precisely why the Government are introducing a new clause to restrict premium increases.
Finally, as the code is not likely to become law for some weeks, if not months, shall not we see a massive attempt on the part of the motor insurance companies to raise their premiums this side of the code coming into force? If that is so, precisely what powers has the Minister to ensure that the accounts are turned to the good, that losses disappear and that any premium increases that are requested in the future will be adequately dealt with by the Government? Prior to the code coming into effect, what powers does the Minister have to deal with those companies that seek unjustifiably to increase premiums?
§ Mr. Nicholas Ridley (Cirencester and Tewkesbury)
I can well understand the Government's acute dilemma over whether to put the new clause into the Bill. The subject of the control of insurance was not mentioned in Committee, and I am sure that my right hon. and hon. Friends are wondering on which side of the fence to come down. I wonder whether the considerations about which the hon. Member for Birmingham, Northfield (Mr. Carter) has been talking were uppermost in their minds. They are considerations which, I confess, when I was in my right hon. and learned Friend's Department, were in my mind—the question of solvency and of making certain that insurance companies were able to meet any claims which might fall on them. On the other hand, there is the question of premiums which is now before the House.
Which of these two is to predominate? Here there is a direct conflict between two aspects of Government policy—on the one hand, to ensure that insurance companies will not become insolvent and, 1292 on the other hand, to ensure that people are not overcharged for their premiums.
I should have been tempted to omit the new clause unless more convincing evidence of abuse could be brought before the House. The control of insurance rates is not like the control of any other price. When considering the price of shoes, manufactured goods or hairdressing, one is operating on a set of known costs, of which the producer of those commodities or services has experience and which one can ascertain and check.
Insurance operations involve making guesses, although they are guesses based on experience, about what future claims will be. This is less true of life insurance, but it is especially true of motor insurance and of general and accident insurance. In the early 1970s inflation caused motor repairs to rise to such a point that there were considerable losses because insurers had not been able to estimate the extent to which those costs would rise when they took premiums.
It is difficult to know on what basis the Government will exercise control of insurance premiums. I shall be grateful if my right hon. and learned Friend will give more guidance on the considerations which he will have in mind. Let us suppose that insurers decide that because building costs are rising they wish to charge more to insure people's houses. Who will tell them that they are wrong, and on what basis will the decision be made? I believe that this matter should appear in the code. I have seen no reference in the code to the criteria upon which the control of insurance premiums will be carried out. May we be told why there is no reference in the code to the method by which these determinations are to be made?
I am sure that the House will agree that the insurance industry is highly competitive. It was the burden of the Opposition's case at the time of the Vehicle and General affair that the industry was too competitive and that competition had so undermined the level of premiums that companies were not only making losses but were being made bankrupt because they had undercut too much and they were thus unable to meet claims. Fire insurance has been referred as a subject for investigation by the Monopolies Commission and the cosy 1293 arrangement is to be broken up. I am all for this, but certainly the rest of the industry is highly competitive. Therefore, I wonder whether it is necessary to put in front of the Government's obligation to prevent bankruptcies the Government's policy to control prices—particularly when competition in insurance appears to be so effective.
How many people will be needed to control insurance premiums? This new idea about controlling insurance charges has been thought of since the manpower requirement was drafted. Presumably there will now have to be an additional manpower requirement to monitor premiums if an order is made to give this power to the Government. I appreciate that no order has so far been made, but if it is made we shall undoubtedly need a considerable number of extra staff.
This may raise yet another problem. Staff skilled in supervising insurance companies are hard to come by and are in short supply. One of the troubles in the Department of Trade and Industry in the past has been the great difficulty in recruiting sufficient staff with knowledge and expertise of insurance to deal with the many companies whose accounts had to be supervised. If the Government are now to supervise premiums as well, then they will need a great deal more staff.
My worry is that the staff in the Department who deal with insurance companies are so overburdened with the work that is already on their plate, plus the requirements to monitor prices under the freeze, that we shall find that the entire staff of the Insurance Division of the Department is concerned with the monitoring programme rather than with getting on with the job of supervising those insurance companies which might be in financial trouble. Which of these two legs of policy will be more important, control of premiums or control of solvency? I should like an assurance that authorisations of new insurance companies, control of solvency, and all the many supervisory matters contemplated in the insurance legislation now before another place will not be jeopardised by taking staff from those aspects and putting them on to the control of premiums. If there is to be a choice between the one task and the other, I believe the former to be the more important.
§ Mr. Arthur Lewis (West Ham, North)
The speech of the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) contained a great deal of truth, particularly towards the end. He should know more than anybody about this subject because he was in the Department when the maladministration and neglect in that Department were so apparent to all concerned. It was not so much the insurance companies that were at fault. It was the hon. Gentleman and his then Department.
My hon. Friend the Member for Birmingham, Northfield (Mr. Carter) will recollect that it took months for us to get answers to letters which we sent to the Department. From what the hon. Member for Cirencester and Tewkesbury said, it would appear as though he and his Department were so overworked that they neglected to do their duty. That probably was the inference contained in the report on the Vehicle and General affair.
Undoubtedly the Department has a great deal on its plate in a number of tasks, and I am wondering whether it will now be in a position to deal with these additional matters from the point of view of the consumer. Whenever I have tried to get in touch with the Department of Trade and Industry I have found that it takes three or four weeks to get a reply merely saying that the matter is being examined. On 23rd December I wrote a letter to the Department about one small price increase. I did not receive a reply until 26th February—and the reply merely informed me that the Minister was referring the matter back to the Camden Borough Council. It has taken virtually three months for the Minister to notify me of what was happening. If this is what happens now, what will happen in future when all this additional work has been loaded on to the Department?
We were told only a month or two ago that any housewife who thought she was being robbed by price increases had only to telephone London. Heaven knows what was supposed to happen if that lady lives in Scotland. We are now being told that there will be a special Department to monitor premiums imposed by insurance companies, to look into solvency matters and all the rest of it, when we cannot even be told in the case of a penny or twopence on a single item, first, who should deal with 1295 the matter, secondly which Department is responsible and, thirdly, and more important, what procedure is to be adopted.
It is well known that insurance premiums among the EEC countries are double the premiums in this country, and in some cases even treble. What will happen when there is harmonisation of insurance premiums within the EEC, a subject on which I understand discussions are now taking place? Will insurance companies be compelled to adopt uniform systems of insurance premiums based on the continental rates? Will the insurance companies come forward and say, "We must treble our premiums, not because we want to do so, or because we need the extra money, and not because we want to make any more profits. Mind you, we do not mind taking a double or treble profit, but this is all being done because we are being controlled by the Common Market"?
Here is my question for the Minister. Does he then say, "Because we have been forced into the Common Market without the full-hearted consent of the public and Parliament, because we find that we are being compelled to double or treble premiums, I am now going to insist that these insurance companies increase their premiums, because you have given me the power under this Bill so to do."
I ask my hon. Friends to watch this very carefully because I think it is an inflationary clause and would have an effect directly opposite to that which the Government prophesy, since it gives the opportunity of doubling or trebling insurance premiums, if desired, on cars in particular and on other items of insurance.
§ 4.0 p.m.
§ Mr. Nicholas Edwards (Pembroke)
In making my remarks, I must first declare an interest. I am a director of an insurance broking firm and a Lloyds underwriting agency and a member of Lloyds.
It seems to me that one or two things need to be said and one or two questions asked about this clause. First, I think we should have it clearly stated by the Government that we are not setting out on a dangerous and slippery slope which we have up to now avoided in this coun- 1296 try—that is, the detailed, permanent long-term control of the rating of insurance premiums. One of the strengths of the insurance industry and its competitive position in the world has been this avoidance of the detailed control which has been applied in many other countries. If we are to accept this clause we must do so only with reluctance and on the basis that it is only for the period for which Part II of this Bill applies.
I am disturbed about the way in which this matter is being dealt with. We have here a new clause, tabled, I believe, last week, and, as my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) said, not referred to in Committee. Both the hon. Member for Birmingham, Northfield (Mr. Carter) and my hon. Friend the Member for Cirencester and Tewkesbury have referred to the code and have implied that it applies to this clause. This is one point I want clarified. I am not clear as to the status of the code in relation to this clause, where the responsibility is being placed with the Department of Trade and Industry. Does the code in fact apply? Do the guidelines laid down in the code have any relevance to insurance premiums?
We had the briefest possible introduction from my hon. and learned Friend, and here again we have a contrast with other matters provided for in the Bill. For most things, we have the consultative document, which has to be debated and discussed. Representations on it are to be considered. Then it is to be brought before this House again as a White Paper. Here, with the insurance industry, we have a clause on which certain principles have been set out briefly by my right hon. and learned Friend in the House this afternoon, and this is all that we know about the way in which this provision is to be administered. Apparently there is to be no room for consultation, but if there is, may we know from my right hon. and learned Friend this afternoon what form it is to take?
There are a number of specific questions. As far as other business transactions are concerned, we know that exports and matters dealing with overseas trade are excluded. This clause as I read it, contains no such exclusion. Apparently it would be within the power of the Minister to control rates applying to overseas business. This may not be his 1297 intention, but will he tell us the way in which he intends to deal with this matter and the manner in which he intends to define insurance in applying the control which this clause gives him the power to administer?
Again, we have heard from him in his speech this afternoon that action is apparently going to be based upon the information available to his Department—that is, the regular information about the state of insurance companies. Will he, therefore, confine himself to a broad study of the profit margins of insurance in particular fields as they arise from the information that his Department receives, or will he get involved in the detailed control of individual cases?
I am bound to say, as a practising insurance broker, that I am filled with awe at the thought of his attempting to apply the kind of controls that are apparently envisaged. It seems to me that there will be some difficulty for insurance brokers. Having failed to get the terms they wish from the underwriter, they then ring up the Department of Trade and Industry, ask for my right hon. and learned Friend, and say that the underwriter has been unfair and charged too high a rate, and what is he going to do about it. I do not see how, in practice, individual rates can be controlled in this way. Can my right hon. and learned Friend give some guidance to the industry about how it is to carry on its business?
My hon. Friend the Member for Cirencester and Tewkesbury referred to one difficulty—that is that insurance is considering events that are going to happen in the future. I will take two examples. In marine insurance, rates are based on experience in past years, but the repairs frequently take place one, two or three years later when repair costs have risen greatly. In liability insurance, claims are frequently settled five, six or seven years after the event and underwriters are seeking to assess the position for the future in a very rapidly changing world, a world in which the whole scope of law and its application, particularly in the United States, are changing month by month. Are factors of this kind going to be taken into account by the Depart- 1298 ment in telling underwriters that they should not increase premiums?
I think that, if we are to give the Minister the wide and extensive powers contained in this clause, we are entitled to a good deal more information than we have had from my right hon. and learned Friend from the Dispatch Box this afternoon. I believe that we are entitled to at least as much guidance and information as are given on other matters in the price and pay code, which is a consultative document.
§ Mr. John Biffen (Oswestry)
I should like to apologise to my right hon. and learned Friend for not having been here at the beginning of the debate on this new clause. It was an unintentional discourtesy and one which could not be avoided.
My hon. Friend the Member for Pembroke (Mr. Nicholas Edwards) made one observation and his speech contained one characteristic comment which, for those of us who are on the Standing Committee, had a very familiar ring. His observation was that there was nothing like enough information in the Minister's speech and that there did not seem as if there ever would be very much information forthcoming in the debate, but that we should not worry about that because in the best of all possible worlds, either it would be a farce or it would be all right on the night.
His second observation was that, with his working experience, he could not see how on earth the Minister would try to carry out all the things that lay within the ambit of his purported ambition. It might have been my hon. Friend the Member for Brighouse and Spenborough (Mr. Proudfoot) talking about the grocery trade and the ambitions of the Bill as compared with the realities of the retail business as he knew them. It might have been the hon. Member for Salford, West (Mr. Orme) talking about the determination of wage rates on the shop floor when confronted with the ambitions of the legislation and the realities of the commercial and the industrial world.
Therefore, we have begun the Report stage in a manner reminiscent of our Standing Committee, comparing the apparent omniscience of the authors of the Bill and the practical limitations in 1299 the world outside. The unequal and inequitable reconciliation between the purported all-powerfulness of the Government and the known random effect of their legislation will lead to the most destructive and unrelenting opposition to the policies that the Bill embodies.
Like my hon. Friends the Members for Pembroke and Cirencester and Tewkesbury (Mr. Ridley), and, indeed, the hon. Member for West Ham, North (Mr. Arthur Lewis), I have some difficulty in relating the clause to the general character of the Bill. First, exactly what is the notification procedure? Is it merely to be the conventional way in which information reaches my right hon. and learned Friend, with his existing authority and responsibility for the insurance industry in his present departmental capacity, or will notification procedures be sought under Clause 5?
The anxiety expressed by my hon. Friend the Member for Pembroke about the relevance of the code to the clause is understandable. We are led to suppose from the terms of the clause that the Secretary of State is to be the monitoring agent, but the rubric alongside Clause 2 says:Code for guidance of Agencies.It does not say that it is a code for the guidance of my right hon. and learned Friend. Therefore, we should like to know exactly how my right hon. and learned Friend seeks to interpret his responsibilities, and above all what is to be the relevance of the code.
We see from paragraph 65 of the code, under the heading "Services", thatIn general, paragraphs 7 to 49 of the Code apply to the prices of service enterprises …".Is insurance, for the purpose of the clause, a service enterprise?
We know—and it cannot be stated too often—that the Price and Pay Code, either as a consultative document or in its final statutory instrument form, has no legal authority in itself. After realising the elaboration of nuances of control contained in the consultative document, many people in industry and commerce must be only too thankful that it does not carry the sanction of law.
1300 4.15 p.m.
On all these points my right hon. and learned Friend will naturally be anxious to assuage the doubts not merely of the professionally informed, such as my hon. Friend the Member for Pembroke but of a wider public. Inevitably, there will be an expectation that my right hon. and learned Friend is some kind of Sir Galahad who will stop the upward thrust of insurance premiums. Therefore, although we do not know by exactly what means notification will be legally required, I predict that there will be an increased flow of postal complaints to Members of Parliament or, perhaps mistakenly, to the agencies, and certainly to the Department direct, asking, "What will you do about proposed increases in insurance premiums?"
I hope that my right hon. and learned Friend will reassure the House that it is not the Government's intention to politicise the insurance industry on the scale on which it has been politicised in many other West European countries and in North America.
§ Mr. Biffen
I am glad to have the verbal support of my hon. Friend.
It is with an almost careless rapture that the Treasury Bench now seeks to politicise almost every aspect of industry and commerce. I cannot believe that that is consistent with what I had assumed to be Conservative philosophy, but I leave that on one side, as we do not wish to have a teach-in on Tory philosophy. I doubt also whether it is consistent with good economic practice. One of the virtues we have proudly proclaimed over the past few years—the ability of the City of London to be the commercial centre of the enlarged community—is not likely to be sustained if there is to be a great deal of ministerial interference with the insurance industry.
That there must be a further ministerial presence, we all agree. That is why there is legislation in another place. But much more daunting is the prospect of capricious and random interference in the workings of the insurance industry, as there seems to be in prospect random and capricious interference in the pricing structures of a great deal of British manufacturing industry.
1301 That is the dilemma before the House when it tries to address itself to the almost gargantuan task of making the present policy comprehensive. The arguments that take us into insurance will inevitably take us into food prices and interest rates. I look forward with some anxiety to my right hon. and learned Friend's answers to these arguments.
A great deal of the quality of the control that we may expect to be exercised can be gauged from the additional number of staff that it is proposed shall be engaged for the purpose. There is something about the clause uneasily reminiscent of Clause 10 on rents. We were told in Committee that the Department of the Environment was to have a wide-ranging remit to study the proposed rating policies of local authorities throughout the country. We were unable to discover how many additional civil servants would be hired for that fairly ambitious exercise. The House would like to know from my right hon. and learned Friend how many additional staff he believes it will be necessary to employ to discharge the additional responsibilities that he undertakes under the clause.
In addressing himself to all these points, my right hon. and learned Friend will have to allay at this late stage in the Bill's progress the sort of anxieties expressed by my hon. Friend the Member for Pembroke, which are widely felt in the City. They are anxieties born not of neurosis, but of a working knowledge of the industry.
§ Mr. Brian Walden (Birmingham, All Saints)
I say at once that the Opposition has no objection to the Department of Trade and Industry monitoring insurance premiums. We are glad to see a Minister, or indeed anyone, from the Department present. In Standing Committee word was brought from afar from time to time about what the Department might think on various issues, but of members of that Department we saw none. It must have been a pleasure for the Minister to have discovered what we have been talking about in the Committee, although his speech introducing this new clause was commendably brief—indeed cursory.
In principle we have no particular objection to what is suggested is being done by this new clause, although there are some great oddities. Like the hon. 1302 Members for Pembroke (Mr. Nicholas Edwards) and for Oswestry (Mr. Biffen) I have no clear idea of how this fits with the code.
§ Mr. Walden
The hon. Member for Cirencester and Tewkesbury (Mr. Ridley) says that it does not, and he may be right. That we shall not find out at this stage and we did not find it out in Standing Committee. I think it was generally understood that the monitoring arrangements related to agencies, but outwardly here they are to be supervised by the Secretary of State.
I do not make much of it, but I make some comments on this suggestion. I do not believe for a moment that it will happen. The document could have a rubric saying, "Prices and Pay Code (Recipe for Bankruptcy)" because if the Government were to carry out the suggested provisions that is precisely what would happen. I regard this as a complete sham and window-dressing used to effect a pay freeze, but it will not happen. It is inconceivable that the Government could do this, and certainly they have not the staff which would be needed. For the sake of form, I join the hon. Member for Oswestry in asking how many additional staff the Government would expect to use, but I have no confidence in any answer that could be given, because I do not believe that they intend to do it.
I believe that there will be a little random, capricious and no doubt foolish intervention on such occasions as when the Government see a little political capital to be made out of it, or when there is a particular storm about insurance premiums and increases in premiums, which are disliked by everyone except those who underwrite them. But the idea that there will be any State monitoring is not one on which I shall waste the time of the House investigating with care.
Strictly on the subject of insurance premiums, it has always seemed to me—and nothing said in this short debate has changed my mind—that the great factor of instability in insurance relates to motor car insurance premiums. This may possibly apply to life insurance, despite what the hon. Member for Pembroke said—I thought he rather inclined to a different opinion—and it has always been my 1303 opinion that it may apply to marine insurance also. I believe that personal insurance has been relatively stable, but the whole business of prognosticating about the future is difficult in motor insurance. A scheme whereby the State could provide for motor car insurance would do more to regulate insurance premiums than anything likely to be done under this clause.
§ Mr. Ridley
Does the hon. Member agree that if control were exercised by the clause at any stage any insurance company would be liable to come back to the Government saying, "You have controlled our premiums. Therefore can you subsidise us if we go bankrupt?". What the hon. Member is suggesting would surely be a step on the road to nationalisation?
§ Mr. Walden
I do not disagree, but I do not regard this as a first step. If a member of my party came to me and suggested this as a method that should be used, I would say, "No, if we are to start messing about with premiums we might as well take them all over because we shall be held responsible for any loss." However, I say that there is no serious intention of doing anything of this kind despite what was said from the Treasury Bench. A sensible thing for the Government to do when they have a free moment from changing their mind would be to think about the whole issue of motor car insurance and whether a State scheme in that sphere would not make a better contribution than this clause.
We shall not divide the House against this clause. We shall underwrite the questions which have been asked. We are not very optimistic about the answers we shall get, but we shall listen, as we always do, with interest to see whether for once we can cull some information as to how in practice this proposal could work.
§ Sir G. Howe
The welcome by the hon. Member for Birmingham, All Saints (Mr. Walden), which I acknowledge, is, I fancy, more penetrating than warm. I shall try to answer some of the questions which have been put.
I begin by asserting quite directly that the powers sought here in relation to insurance company charges are exactly the same type as those provided for in earlier 1304 clauses of the Bill in relation to prices and charges of other kinds. They are of the kind that has been exercised during the standstill as appropriate for exercise during stage 2. They have been exercised during the standstill with complete effect because there have been no increases of insurance company scales since the commencement of the standstill on 6th November, except in one exceptional case of a small company in a loss-making situation. They are, therefore, powers which are intended to be used, which can be used and which will be effective so far as they are used. There is nothing relating to a sham such as was suggested by the hon. Member, either in this field or in any other. They are part of an effective policy of control of prices and charges.
§ Mr. Norman Atkinson (Tottenham)
Will the right hon. and learned Gentleman reiterate what he has just said? I understood him to say that during the period of freeze all premiums which were renewed were renewed at the same level as applied last year. Does he say that there were no increases in premiums?
§ Sir G. Howe
I said that there were no increases in premium scales and that in fact where a new scale was introduced and brought into effect, as each policy holder came up before 6th November that new scale applied. There was no introduction of new scales starting after 6th November. That is what I said and what I meant to say. Obviously if a new scale came in during April last year and policy holders came on to the new scale, it would be at the higher rate, but there were no increases in the scales at which renewals have been taking place since 6th November.
The hon. Member for Birmingham, Northfield (Mr. Carter) asked whether the Minister's power to direct rate increases, or the Minister's powers generally under the Insurance Companies Acts, would be exercisable during and notwithstanding stage 2. The answer is, yes indeed, just as they remained exercisable during the standstill, because the two matters have to be considered together. If the situation is reached in which an insurance company appears to require intervention under the Insurance Companies Acts, that power to intervene remains and has not been affected. That 1305 is not inconsistent with the overriding objective of controlling price or cost increases in insurance or elsewhere.
He also asked why the clause was needed in relation to insurance premiums, tending, I thought, to imply that they ought to be exempt from control, because of his anxiety about the possibility of insurance companies moving into bankruptcy. The answer is that insurance company charges are an element forming part of the total panoply of prices in relation to which control should be exercised so far as is consistent with the continued prosperity and soundness of the industry in question.
The position in that respect is the same as it was for insurance and resinsurance in 1966. The hon. Member also suggested that there would be a massive attempt to raise insurance premium rates before phase 2 started. The answer is that such an attempt would be no more permitted for insurance premium rates than it would be for any other prices. Insurance company rates are subject to the standstill and if any attempt were made to raise them before phase 2 began, the powers already in existence could and would be exercised.
§ Mr. J. Bruce-Gardyne (South Angus)
While accepting what the Minister says about phase 1, may I ask him to confirm that once we come to phase 2 there will be nothing in law to prevent insurance companies from putting up their premiums to the extent that they believe necessary?
§ Sir G. Howe
Insurance companies will be subject to the same guidance as other sectors of service industry.
§ Mr. Biffen
Can the Minister say what is the legal position under the Bill when enacted? Are insurance companies legally required to give notification of alterations in scales and if so, under which section?
§ Sir G. Howe
My hon. Friend knows the answer to that quite well. He may criticise it but his criticism would be without foundation. I will amplify that a little. The position is that so far as the code will be operative and so far as the standstill guidelines have been operative, they acquire the force of law when an order is made dealing with 1306 prices under Clauses 6 or 7, or whatever the relevant clause may be.
Until such an order is made those concerned with the fixing of prices or charges are responding to the requirements, not legal requirements, set out in the standstill. My hon. Friend the Member for Oswestry (Mr. Biffen) sounded as if he were complaining about that position in the first part of his speech and in the latter part he sounded as if he were rejoicing because he was suggesting that to have the entire framework of the code contained in a body of immediately and directly applicable criminal law would be unacceptable and unpalatable.
If guidelines are laid down, as they are in the code, if they are approved, as they will be if the code is approved by Parliament, and if the Statute gives power to enforce those guide-lines when they are manifestly being infringed, then that is a more sensitive way of applying this kind of policy for controlling prices or wages than any other alternative.
§ Mr. Biffen
The longer he speaks the more my right hon. and learned Friend sounds like the Secretary of State for Employment. I do believe that it is the subject which infects the speaker. My question was under what section of the Counter-Inflation Act, if it is enacted, will insurance companies be required to notify the Government of any alteration in scale charges?
§ Sir G. Howe
They are not required to notify under any part of the Bill as it now stands. The fact is that no applications for or notification of rate increases have been made—[HON. MEMBERS: "Why should they?"]. Hon. Members must understand the effective and sensible way in which this proposal works. During the period of the standstill there have been several hundred complaints about alleged increases in insurance company scale rates. They have all been investigated. With three exceptions, none springs from changes in insurance company scale rates since 6th November. There were three exceptions identified which were the result of clerical errors and not of any change in the rate being applied. In all those cases the excess premium has been returned to the policy holder. The fact 1307 that there has been that degree of information about the working of the standstill for insurance company premiums enables me to assert that there have been no changes in insurance company scale rates.
§ Mr. Carter
Is the right hon. and learned Gentleman saying that as insurance companies are not required to notify his Department about premium increases or intended increases, and if he receives no complaints from the general public, insurance companies are at liberty to increase their premiums to whatever level they want?
§ Sir G. Howe
They are subject to the possibility of a requirement to reduce their scales as a result of an order made under the Act in the same way as any other increase in price or charge could be reduced. It is upon that basis that the standstill has been and is being observed, with the support of the insurance industry, as with the great mass of industry and trade in the country. It is subject to exactly the same sanction of having its prices and scales reduced by order or notice under this measure as anyone else fixing any other price.
My hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) suggested that there was a conflict between the requirements of insurance companies legislation and that set out in the Bill. It was said that the power now proposed to be taken in this clause was a new one additional to those contained in the Bill as considered in Committee. The nature of the change now being proposed is merely an identification of the Secretary of State as being the person who should exercise the power in connection with insurance companies.
Insurance companies have been under control during the standstill period. This is merely an identification of the way in which they should be controlled. It is to remove any possibility of conflict that we propose a provision of this kind, to have the Insurance Companies Acts control and the control under this measure exercised by the single authority of the Department of Trade and Industry.
§ Mr. Anthony Wedgwood Benn (Bristol, South-East)
If the insurance legislation is intended to see that premiums are high 1308 enough to prevent insolvency and the present Bill is designed to see that they are low enough to prevent inflation, and if both these powers are to be exercised by the Minister's own Department, what discretion is there left to the insurance companies, and if there is any discretion left to them, under which powers do they exercise it?
§ Sir G. Howe
Insurance companies have the same discretion as anyone else to fix a price or charge during the standstill or the stage 2 period. The discretion has to be exercised in the context of the policies laid down in the code for stage 2 just as anyone fixing the price for any other commodity has to have regard to the code because of the prospect that he could have his price reduced or rolled back by order or notice made thereafter. An insurance company is subject to the same guidelines.
§ Mr. Ridley
Suppose my right hon. and learned Friend were to control the level of a premium where an application had been made by an insurance company, as is assumed by his Department, and subsequently that insurance company went into bankruptcy with the result that hundreds of thousands of policyholders lost the value of their policies—which might well be life policies—would he not agree that the Government would then be bound morally to accept responsibility for compensating all those policyholders? Will my right hon. and learned Friend confirm that the Government are now taking responsibility for bankrupt insurance companies if an order has been placed restricting the premiums the companies may charge?
§ Sir G. Howe
I cannot confirm that. My hon. Friend the Member for Cirencester and Tewkesbury knows, because of the arguments he was advancing in relation to the powers of the Department to intervene in insolvency when he was there, that the factors that have to be taken into account are the same as those he was then taking into account.
As the hon. Member for Birmingham, All Saints said, this is no more a first or a second step towards nationalisation of insurance companies than are the provisions of any insurance companies Bill.
Governments of both parties have accepted as a perfectly legitimate and necessary exercise of governmental power 1309 some surveillance by the Department of Trade and Industry in the interests of solvency. Surveillance to prevent inflationary price increases in insurance premiums for the duration of this Counter-Inflation Bill is not a fundamental change in what already exists in the insurance companies legislation.
§ Mr. Benn
This is an important point. There is, of course, a difference between seeing that premiums are high enough to meet one's obligations and the Government's giving an order that premiums are to be kept down. If, following an order by the Minister to keep premiums down, there is an insolvency, is the Minister saying the Government would accept no responsibility for those policyholders who had lost what would otherwise be owing to them as a direct result of Government action? Are not the Government in a sense bound to underwrite the consequences of their own orders restricting the premiums which are to be charged as a result of the orders?
§ Sir G. Howe
The Government would be no more directly and automatically bound as the right hon. Gentleman implies in those circumstances than they are in a comparable situation under the existing insurance companies legislation because the same judgment and criticism could be advanced the other way round. Indeed, the hon. Member for Birmingham, Northfield said so in the context of V and G.
§ Mr. Carter
If the Minister is denying what my right hon. Friend said, were he, under the power he has regarding solvency, to find that a company is on the verge of bankruptcy and, in order to get out of that position, that company requires an abnormally high premium increase, would he sanction that increase? If that is the case, what reason is there for the clause as it stands?
§ Sir G. Howe
The criteria that arise in that case are identical to those that arise in relation to any other enterprise as set out in the code. Just as the code makes provision for either a loss-making or low-profit enterprise, so the same kind of considerations would have to apply in the situation to which the hon. Member has just referred.
The hon. Member for West Ham, North (Mr. Arthur Lewis) raised some 1310 shadows from the European scene. I do no more than remind him that the provisions so far before the Communities concerning harmonisation relate not to insurance company rates but to establishment.
The hon. Member for Pembroke (Mr. Nicholas Edwards) and several of my other hon. Friends inquired about the intention of the Government to make any long-term change. The hon. Member for Pembroke talked about dirigisme. My hon. Friend the Member for Oswestry, in not quite an Anglo-Saxon but in a Greco-Anglo-Saxon way, talked about politicisation of the insurance industry. Neither of those is either an objective of the Government or the result of these provisions. We fully recognise the extent to which our own insurance company business has operated in some ways distinct from others round the world. That is reflected, for example, in the Bill now under consideration in another place.
All that is being proposed here is the power to require notification by use of the powers under Clause 12 in relation to insurance companies just as to everyone else and the power to make orders under this new clause to restrict increases in premium rates.
As to the specific question asked by my hon. Friend the Member for Pembroke, overseas insurance rates, in the same way as exports of other commodities, are not intended to be covered, nor are those forms of insurance of the kind to which he was referring where rates are subject to negotiation from case to case. The area intended to be covered is primarily that where scheduled rates are the main factor in fixing the cost of insurance.
§ 4.45 p.m.
§ Mr. Bruce-Gardyne
I am afraid the Minister still has not cleared up what would be the legal position under phase 2 if this new clause is approved in two respects. First, subsection (1) of the new clause says(1) The Secretary of State shall have power to restrict insurance premiums".Does it mean that if my insurance company puts up my motor premium and appeals to the Secretary of State he will have power retroactively to have that premium reviewed? According to my 1311 understanding, that is not what the new clause says. Secondly, he has just said that the Secretary of State would have power to require notification of premiums. Where does he find that in the new clause?
§ Sir G. Howe
I answered the second question of my hon. Friend the Member for South Angus (Mr. Bruce-Gardyne) when I referred to the power already existing under Clause 12 to require notification.
§ Mr. Biffen
Would not my right hon. and learned Friend agree that in the real world, and in the terms in which my hon. Friend the Member for Pembroke (Mr. Nicholas Edwards) is considering this matter, there is a fair distinction whether this notification will be required by notice or by order, leaving aside the question of the parliamentary considerations that flow from that decision? Would the Minister take this opportunity to elaborate a little more precisely how he will require the notification of this information and what types of information he will require?
§ Sir G. Howe
My hon. Friend the Member for South Angus asked me where the Minister had power to require such notification. The answer is that this derives from Clause 12 either by notice or by order.
The question of how far the Minister will find it necessary to use statutory powers to require notification is one that does not yet have to be answered because notification of the kind likely to be forthcoming in respect of other prices and other commodities may well be forthcoming without the need to exercise statutory powers. The matter is at present under discussion between my officials and the industry. As in earlier periods, it may well be possible to secure a voluntary pattern for notification which is obviously preferred to a statutory requirement. The statutory power arises under Clause 12. The statutory power to restrict the premium arises under subsection (1) of the new clause we are now discussing.
§ Mr. Nicholas Edwards
My right hon. and learned Friend made a very important statement before the most recent interventions.
1312 Time and time again whilst speaking from the Dispatch Box the Minister has talked about the control of insurance scales. He has just said that these powers do not apply, apparently, in cases which are individually negotiated. I should be grateful if the Minister will elaborate on this point. Is he saying that the powers provided under the clause apply only in cases where insurance scales are published by the insurance companies?
§ Sir G. Howe
The powers are, generally, the powers provided under subsection (1), but it is not the intention that they should be exercised in relation to overseas insurance or insurance contracts which are the subject of individual negotiation. Equally, for example, the power to make variations in individual premium ratings because of individual changes in risk would not normally be interfered with. It is in relation to scale rates, which can exercise a substantial influence on the cost of living, that it is the intention to exercise the powers contained in the clause.
§ Mr. W. R. Rees-Davies (Isle of Thanet)
I understand my right hon. and learned Friend to say that, whilst it may be possible to exercise some control over the general rates applicable across the board, there is no intention to deal with the case that arises with motor insurance where the individual characteristics of the driver may determine the insurance risk. It is only in the very broadest terms that the Government consider that they should take power to monitor loosely general control. Is that the nature of what my right hon. and learned Friend is saying?
§ Sir G. Howe
The nature of what I am saying is that we recognise—and this is an explanation for the two questions asked by my hon. Friend the Member for Pembroke—that some flexibility is required in relating premiums to the kind of claim and the nature of the risk, particularly in individual cases. The intention is to exercise control consistent with the provisions of the code dealing with services in relation to scheduled rates. These are the broad matters operating across, the board which could adversely affect the cost of living if prices were to increase too sharply. The clause will give us the power to exercise that intention in a way that is most effective. 1313 most workable and consistent with the rest of the proposals.
§ Mr. Ridley
If there is to be a higher claims expectation and a rise of, say 10 per cent. in the premium, will paragraph 19 of the code apply, whereby only 50 per cent. of allowable costs will be taken into consideration? My right hon. and learned Friend will agree that there can be no increase in productivity through a worsening in claims experience. Productivity is not relevant in that situation. If insurance companies are to have 50 per cent. of their increased costs disallowed, it means, automatically, if the code is applied, that they will be threatened with lower and lower solvency margins.
§ Sir G. Howe
Unusually for him, my hon. Friend has read paragraph 19 of the code with less than his usual care. Paragraph 19 requires not more than 50 per cent. of allowable cost increases arising from pay increases to be passed through as price increases, and paragraph 19 does not apply to the provisions covered by the clause.
§ Mr. Brian Walden
The Minister has given way generously, and I did not interrupt him while his hon. Friends were questioning him as I did not wish to intrude into private grief. The Opposition cannot allow the clause to go by with the answers that the Minister has given to his hon. Friends on the legal situation without at least saying how they understand it.
Whenever Ministers are asked this question—the right hon. and learned Gentleman is not the only Minister who is guilty—an incredible "duckspeak" comes out which must be incomprehensible outside the House and is barely comprehensible inside. The reason—a dangerous one—is that the Government are trying to con us that they are doing things by law when they are not doing things by law but by exhortation.
Under this clause, as under the other provisions of the Bill, the Opposition's understanding is that discussions are going on about notification. It might become a statutory requirement, it might be done voluntarily. Eventually, doubtless after the Bill has become an Act, hon. Members will read in the newspaper one morning which it is to be.
1314 On the other question about where the legal sanction is, the legal sanction is that one can do as one chooses and remain within the law until such time as the Government or the agencies serve an order on one, and then, as a law-abiding citizen, one must obey the order. That is how the Opposition understand it, and why the Treasury Bench cannot put it like that I do not understand.
§ Question put and agreed to.
§ Clause read a Second time, and added to the Bill.