INSURANCE COMMISSIONER

HC Deb 17 July 1973 vol 860 cc341-66

1. (1) The Secretary of State shall appoint an officer to be known as the Insurance Commissioner.
2. (2) The Insurance Commissioner may appoint such staff as he thinks fit.
3. (3) It shall be the duty of the Insurance Commissioner:
   1. (a) to keep under review practices relating to insurance which affect policy holders or potential policyholders in the United Kingdom and to collect information with respect to these practices and the persons by whom they are carried on with a view to his becoming aware of practices relating to insurance which may adversely affect the interests of policyholders or potential policyholders in the United Kingdom;
   2. (b) to receive and investigate complaints by policyholders or potential policyholders in the United Kingdom;
   3. (c) to have regard to evidence becoming available to him with respect to any course of conduct on the part of an insurance company to which the Act of 1958 applies and which appears to be conduct detrimental to the interests of policyholders or potential policyholders in the United Kingdom, and to publish such evidence in any way which he thinks fit;
   4. (d) to give, either at his own initiative or at the request of the Secretary of State, information, assistance and advice to the Secretary of State with respect to any of the matters mentioned in paragraph (a), (b) and (c) above and with respect to the exercise by the Secretary of State of any of his powers under the Act of 1958, Part II of the Act of 1967 or this Act.
4. (4) The Insurance Commissioner shall publish an annual report and may also arrange for the publication at any other time in such form and in such manner as he may consider appropriate, of such information and advice with respect to practices relating to insurance as it may appear to him to be desirable to give to policyholders or potential policyholders in the United Kingdom.—[Mr. Millan.]

Brought up, an read the First time.

7.10 p.m.

Mr. Bruce Millan (Glasgow, Craig-ton)

I beg to move, That the clause be read a Second time.

In Committee we had a rather unsatisfactory debate about the proposal for an insurance commission contained in a new clause moved by my hon. Friend the Member for Birmingham, Northfield (Mr. Carter): It dealt with a rather wider series of matters than new Clause 1 does. There has been a certain confusion between two concepts which are entirely different. First, there is the concept that there should be an insurance commission which would take over some of the regulatory work at present performed by the insurance division of the Department of Trade and Industry. There is a case for that, but the Bill as drafted is very much on the basis that work of that kind will remain with the Department.

For the purpose of the present argument, I will accept that situation, but the question whether there should be an insurance commissioner, with something like the ombudsman's functions, is a separate question, and it is possible to accept that the Department should be responsible generally for the regulatory work of dealing with the insurance business and at the same time to believe that there is an important rôle to be played by an insurance commissioner of the sort we propose.

Why do we need some kind of independent person for the insurance industry? It is not because we believe that all insurance companies are operated in a way detrimental to their policy holders or that there is a large element in the industry operating in discreditable ways. That is not the situation. The insurance industry as a whole operates fairly towards policy holders and potential policy holders, but the fact remains that there are certain elements in it—the purpose of the Bill is largely to deal with them—which, unless they are carefully controlled and checked, are likely to behave in ways unfair to policy holders and in certain circumstances in fraudulent ways.

Apart from that, the question of an insurance contract raises the point that the potential policy holder is nearly always in an unequal situation in relation to the insurance company because it has a vast body of knowledge and expertise behind it whereas he is normally relying to a large extent in making the contract on what the insurance company tells him.

7.15 p.m.

The point is well made by the Scott Committee's Report in paragraph 237, although admittedly in relation to linked life assurance. But the paragraph goes significantly beyond that in saying: We recognise that a policyholder may feel a sense of helplessness when he is confused by complicated material which he does not fully understand. That is basically the case for the appointment of an insurance commissioner.

Many policies which people now take out are very complicated with much detail and sometimes almost unintelligible provisions. Hon. Members from time to time get cases of constituents relating to a policy in which the constituents felt that they were covered for some particular liability but on making the claim found that they were not. We are also familiar with cases where the company has denied liability for some reason, good or bad, perhaps because there was not full disclosure by the policy holder of all the material when the policy was first contracted for, or is acting in a difficult way in dealing with a claim, causing delay and anxiety to the policy holder. There is also the minority of cases where the policy holder unfortunately finds that he is insured for some particular liability with a company which turns out to be run incompetently or even fraudulently.

The Scott Committee turned down the proposal for an insurance ombudsman but did so for narrow and unsatisfactory reasons. Basically, it said that there should not be an ombudsman only for linked life assurance. I do not think that what the majority report said about the ombudsman by any means closes the issue.

Miss E. R. C. Roberts, in an interesting note of reservation to the report, recommended that there should be an insurance commissioner. New Clause 1 takes up that minority point. I do not believe that the kind of job which the clause would give an insurance commissioner can adequately be done by the Department. There is an important rôle for the Department to play in the regulation of insurance business but the job we propose, which is set out in sub-paragraph (b)— to receive and investigate complaints by policyholders or potential policyholders… is not the kind of job which the Department can adequately do, nor the kind of job which one would normally expect it to do.

The Department in a matter of this sort has to deal exclusively with what is actually in legislation or regulations. It cannot be discriminatory between one insurance company and another. It has not a particular point of view as to whether a certain practice is desirable or undesirable. It is, therefore, not able adequately to do the job of protecting the policy holders in the way in which the clause offers. This argument has been accepted by the Government in a wider context in the Fair Trading Bill, and the Minister will no doubt have seen that the wording of the clause very much follows the wording of the Fair Trading Bill.

The argument used for the appointment of the Director-General of Fair Trading in a wider sphere of consumer affairs has basically been the sort of argument that I have used in relation to the insurance industry. It does not presume that one is dealing with a large mass of people who are liable deliberately to swindle consumers, but it means that if we are to make consumer protection a reality there is need for an independent agency looking after the interests of consumers, outside and independent of Government Departments and, indeed, in certain circumstances willing to make itself unpopular with Government Departments by telling Ministers things which in certain circumstances they might not want to hear.

Therefore, the principle behind the clause is very much the principle which is behind the appointment of the Director-General of Fair Trading. The wording I have used is basically much the same. Paragraph (a) deals with keeping under review insurance practices so that the information is available to the commissioner and paragraph (b), as I have already stated, relates to receiving and investigating complaints. Paragraph (c) is also taken from the Fair Trading Bill, but in this case directed towards a particular insurance company which may be giving widespread cause for concern and where the commissioner feels, first, that the public should be warned about the insurance company and, secondly, that the Minister ought to be warned as well so that the powers available to the Minister to deal with the insurance company or with the industry as a whole are used in the circumstances which have come to light. Paragraph (d) simply gives a general power of giving information, assistance and advice to the Secretary of State so that he will be better equipped to use the powers than he has available with the previous insurance legislation and this legislation.

It seems that the only substantial argument against the clause giving a similar kind of arrangement already accepted by the Government for consumer practices generally is the fact that the Director-General can do the job as laid down for the insurance commissioner and can do it through the general procedures laid down by the Fair Trading Bill, which is still going through the House.

Under the Fair Trading Bill there are certain circumstances in which the work of the Director-General will fit the insurance industry. Although the insurance industry as a service is included in the Fair Trading Bill, it is also true that the procedures defined in the Bill do not in many respects adequately fit the insurance industry. Indeed, if they did a good deal of the Bill we are dealing with would not be necessary, There would not need to be, for example, any provisions in the present Bill for dealing with advertisements if the whole question of misleading advertisements could be dealt with under the Fair Trading Bill.

Second, I am not convinced that without a separate insurance commissioner the problems of the insurance industry will get the attention that they deserve through the office of the Director-General of Fair Trading, who will have wide powers and responsibilities and will, in the early stages at least, have many prior responsibilities. It is provided in the Fair Trading Bill that the Government will give priorities to the Director-General of Fair Trading. I shall be surprised—but perhaps the Minister will answer this point—if these priorities deal in the first instance with the question of the insurance industry. It seems to me that this is an important clause. It literally affects millions of policy holders and potential policy holders and is very much in line with the principles accepted by the Government and by the Opposition on the Fair Trading Bill.

It is another step towards making consumer protection in this important area a reality. It is in line with the recommendations and the evidence which the Consumers Association gave to the Scott Committee, and it is in line with enlightened consumer opinion generally in this country. I hope that it will be sympathetically considered and accepted by the Government.

Mr. Ray Carter (Birmingham, Northfield)

This Bill, which is undoubtedly complex, as we discovered in Committee, says a lot about the insurance industry and its management and control. Rarely does it mention the person in whom I have a considerable interest—as I am sure the whole House does—the policy holder. In Committee I tabled a new clause that embodied at least the principles of this new Clause. I sincerely hope that the Government will accept the principle embodied here. The new clause is required because in the insurance industry there is no independent body to whom policy holders can turn when they feel that they have a justifiable complaint.

As I pointed out in Committee, the industry does have an investigatory body of its own, but that is an internal affair. I accept that the people who administer and are responsible for it are honourable people, but it renders it liable to suspicion, because the industry appears to be both judge and jury. The other rather sad aspect about the present arrangements within the industry is that this body is virtually unknown to the consuming public. As far as I know, the industry has made virtually no effort to publicise the fact that if a policy holder has a complaint he can have it dealt with by this body.

I know of the existence of this body because, as I said in Committee, in my early days in the House a constituent had cause to raise a complaint with me about the industry. A thorough investigation was carried out, but at the end of it my constituent still felt that a thorough-going inquiry had not been carried out, so she did not feel able to accept the findings of that body. She was not in a position to afford to resort to law.

Complaints arise in many areas of insurance. They have arisen in my own case, following a fire at my home when items were damaged and had to be replaced. I contested the value placed upon them by the insurance companies. That happened some years ago. Had I known that I could have gone to the insurance industry and complained and had my complaint investigated I might have been satisfied. At present there must be many people who have problems about valuations and who accept the insurance company's figure because they think that they cannot have their complaints investigated. They are unaware of the existence of this body.

There is, further, the whole area of motor insurance. We all know of complaints by people who feel that the value of their vehicle has been set too low. Once again, because of a lack of knowledge or an inability to contest the matter legally, the valuation of the insurance company is accepted and the owner's grievance is not dealt with. There is a similar picture in many other areas. Many similar complaints must arise with theft and life cover.

7.30 p.m.

There are also problems that arise when consumers feel that the company with which they are insured is not conducting its affairs in the correct way. I have many examples of this. People have written to me from the four corners of this country with complaints about one matter or another which they would like investigated. I am sure they would not feel that raising their complaints with the insurance industry and having them investigated by this internal body would meet the case. It does not matter what the control and ownership of the insurance industry is or is likely to be—whether it is State insurance, as much insurance already is, an incorporated company, or a mutually-owned company.

There should always be the right of a policy holder to go on an entirely independent body and have his complaint fully, impartially and independently investigated. A precedent has been set. The Secretary of State for Social Services established a commission to oversee the new reserve pension scheme, and existing pension schemes in industry and commerce. That is a precedent, apart from all the others mentioned by my hon. Friend the Member for Glasgow, Craig- ton (Mr. Millan), which should appeal to the Government because here they have one Government Department saying that in one area it is believed to be necessary, indeed vital, given the present level of interest in consumer affairs generally, for people in pension schemes to have the right to go to the commissioner with a complaint.

If the Government cannot accept every word and line of the new clause they must at least accept its spirit and recognise that quite apart from the insurance industry, the wider interests of the public and the policy holder have to be considered. After all, the policy holder provides the wherewithal for the insurance industry. Were it not for them no insurance company would exist. It is about time we heard something from the Government Front Bench, in defence not so much of the industry but of those who make the industry possible—the policy holders.

Mr. R. A. McCrindie (Billericay)

I understand the objective of the new clause but I am not at all sure that I can go along with it. I say that because it is partly unnecessary and partly premature. The hon. Member for Glasgow, Craigton (Mr. Millan) has said that its purpose is to create something akin to an ombudsman. The question is fairly directed to the Government: if an ombudsman is an acceptable factor in other areas of life, why should it not be accepted here? The country as a whole runs a great risk in placing too much of a sublime faith on the word "ombudsman". It is a faith which I do not believe is always justified.

In considering the creation of an ombudsman in this area of commercial activity, accepting that it touches on the everyday life of the consumer, I wonder whether sufficient regard is paid to the fact that in dealing with insurance policies and irregularities under them we are dealing with legal contracts. To invite an ombudsman to move into this area would be embarking on a totally different course from that which ombudsmen in other areas have been expected to follow until now.

The Opposition suggested that the Scott Committee on linked life assurance considered but rejected the idea of an ombudsman because it dealt with a very narrow section of linked life assurance I wonder whether that is a fair interpretation of what the Scott Committee said. In my view, having analysed the desirability of creating an ombudsman, the committee seriously questioned whether it was the right form of complaints machinery to introduce into this very intricate business.

I said that I felt that the clause was partly unnecessary and partly premature. Let me explain what I mean. The gist of the clause is in subsection (3)(a), (b) and (c). Many of the matters referred to in paragraphs (a) and (c) are referred to in the Bill. One could be excused for saying that the clause closes the door after the horse has been tethered. The horse is tethered by reference to such powers, taken in the Bill, as restrictions on the taking of new business, actuarial investigations, and the margin of solvency—all of which affect the matters about which hon. Members opposite are understandably afraid. The Bill deals with such matters as the control of insurance advertisements and misleading statements inducing people to enter into contracts of insurance. The essence of the Bill makes the new clause superfluous and unnecessary.

A different set of circumstances applies to subsection (3)(b). If I were to be asked to put in shorthand what that subsection referred to, I should describe it as consumer protection. As we are talking about a business with millions of customers, at a time when consumer protection is understandably fashionable and important, I wonder whether, for that reason alone, the clause should receive a measure of acceptance. On examination, I do not think that it should, because the creation of the Director-General of Fair Trading in another Bill going through the House provides the machinery under which some element of consumer protection can be extended to the public in insurance. It would therefore be premature to create, in addition to the director-general, another office particularly directed to the investigation of insurance complaints.

I am not against the delegation to another officer of some of the powers taken in the Bill by the Department of Trade and Industry. My right hon. and learned Friend the Minister may recall that about two years ago a paper was produced suggesting that the office of registrar might well be considered. The Government, when considering this legislation, decided not to accept that idea. However, there is still an argument to be made for delegating to a registrar some of the powers that the Government are taking under the Bill, so that an element of independence—almost an element of consumer protection—is perhaps accidentally introduced into a Bill—does not specifically provide for it.

I understand what the clause is expected to do, but for the reasons that I have given I believe that it is unnecessary and premature.

Mr. William Hannan (Glasgow, Mary-bill)

I am rather late in coming into these discussions, but I wish to say a few words about the suggested appointment of a commissioner out of my 20 years' experience in insurance before becoming a Member of Parliament.

In the 1930s, the May Commission considered the question of the insurance business. Some of the revelations and considerations that flowed from it were written into a book by a Member of the House at about that time—a Mr. Wilson. The May Commission found that in the 1920s and 1930s, because of uncertain employment, many policy holders were running into arrears. Having gone over the eight-week's time limit, they were sent forfeiture notices saying that if the arrears were not paid within a certain time the policies would be forfeited. The notice did not indicate that if the policy holder had paid five years' premiums the moneys would not be entirely forfeited, but a free paid-up policy for a reduced amount would be issued. That was written in small print on the policy, but many policy holders did not read it. They are aware of the name of the life assured, the policy holder and the sum assured, but outwith that, very few policy holders know the full extent of the conditions of the insurance.

The May Commission, instead of leaving the responsibility on the policy holder to claim back the reduced sum to which he was entitled if he had paid premiums for five years, suggested—and it later became law—that the onus should more properly be put on the insurance companies to inform the holder that, having paid two years' premiums—as it is now—and having forfeited his policy because of non-payment of premiums, he had nevertheless qualified for a reduced sum by way of compensation for the moneys paid.

If I were still associated as closely as I was with the insurance business, I might well feel that such loopholes as that still existed. Therefore, I should have thought that a proposal such as that incorporated in the new clause would be of value. My hon. Friend the Member for Birmingham, Northfield (Mr. Carter) spoke of motor insurance companies whose financial record has not been happy. Many of us still receive letters that indicate that insurance companies are treating policy holders almost with contempt, saying, "If you want to do more about the matter, the courts are open to you." We hear a lot of talk from the Government about the consumer, but they take very little action—at least, action that reassures policy holders.

For personal reasons, of which some of my hon. Friends are aware, I have not attended debates so regularly recently, but I hope that the point that I have made will encourage the Government to accept the new clause.

7.45 p.m.

Mr. Roger Moate (Faversham)

The House is sometimes accused of being rather slow. The hon. Member for Glasgow, Maryhill (Mr. William Hannan), who has just quoted a 1920 proposal which might be expected to come to fruition in the form of the amendment, has produced a classic example of this.

I declare an interest as a director of a firm of Lloyd's insurance brokers. Like my hon. Friend the Member for Billericay (Mr. McCrindle), I welcome the spirit of the amendment although I do not think it is a practical proposal which should be embodied in the Bill. I, too, supported the idea of a separate registrar or insurance commissioner. My objective was that he should conduct the regulatory functions embodied in the Bill. A separate registrar operating these functions within the City of London could continue to do so for many years to come, when, perhaps, the spotlight is off insurance companies, in a more sen- sitive manner than can be expected from civil servants. I hope that the Government will not discount the possibility of hiving off these functions to a separate registrar at some stage, although the ultimate powers and sanctions must be retained and operated by the Secretary of State.

The amendment does not go as far as that. It is basically about an ombudsman. The hon. Member for Glasgow, Craigton (Mr. Millan) moved the clause in the same constructive way as he debated the Bill in Committee. He helped us by his close analysis of a difficult and complex Bill. I pay the same compliment to my hon. Friends who introduced the Bill. They made it more comprehensive to us, and we all appreciated that.

The Bill takes considerable powers to prevent the worst type of occurrences; namely, the collapse of an insurance company, blatant fraud and the abuse of legislation. Those are the matters of consumer protection with which we are primarily concerned. The clause goes in a different direction towards consumer protection on matters of judgment—more minor matters but just as real to persons who suffer loss.

Bearing in mind the millions of holders of life, motor and household policies, there are relatively few complaints. Many find their way into the postbags of Members of Parliament. Most of them are settled satisfactorily through ex gratia payments by insurance companies or by negotiation or arbitration. In such a vast and complex industry there must be some unfairness and wrong judgments. It is desirable to find a way of resolving those matters and making sure that everyone has a fair deal, but we should not run away with the idea that every claimant and every unhappy policy holder is whiter than white. There are many policy holders, both domestic and commercial, who abuse their policies. We are talking about the interpretation of legal contracts. That is the major difference between insurance and other legal matters and the area of responsibility of a director of fair trading.

An insurance contract, for example, may exclude a particular loss. The policy holder may not have read his contract or may not have understood it. If he suffers a loss which is excluded from his policy, does he go to the ombudsman and say he feels that he should have been covered? He is not covered, and there is nothing that can be done.

I recall a constituency case of a man whose building was insured through the building society. All he had was a proposal form that said that the policy covered burglary. The policy covered burglary, but only for the building. That might seem illogical, but damage can be caused to a building by a burglar. The man thought the contents were covered, but they were not. He suffered a loss of several hundred pounds—most of his assets. If that problem had been taken to the commissioner nothing could have been done because no insurance company had received a premium or issued a policy to cover that loss. No insurance commissioner, ombudsman or director of fair trading for the insurance companies could settle 99 per cent. of the difficulties that arise.

We should have great sympathy for a person without commercial experience or legal training who is presented with complex insurance matters of which he has little understanding. I hope that the insurance industry is constantly seeking to make sure that its procedures are right. People can, and should, complain to the investigatory body that exists. They should write to the BIA to say that they feel they have been misled and ask the BIA to look into the matter, or they should write to their Member of Parliament. I hope that they will not do so on too large a scale. [HON. MEMBERS: "Why not?"] I was showing concern for the postbags of Members of Parliament, but they should come to us. I hope that we are constructive and sensible in dealing with genuine misunderstandings. We should make sure that policies have the right arbitration conditions. Many motor policies have written into them arbitration procedures which have worked satisfactorily.

The proposal contained in the amendment is not practical. That is not a reason to reject it out of hand. We should look closely at the arrangements necessary to ensure that policy holders get fair and impartial advice when they disagree with the insurance company. I am sure that the Government will do this and, therefore, the amendment should be rejected.

Mr. Albert Booth (Barrow-in-Furness)

I support the clause. It would be a valuable extension to the Bill.

The Bill offers a certain form of protection to policy holders. If the Bill succeeds in ensuring that no insolvent company continues to operate and that no company gambles with the premiums it takes, no one can deny that this will result in the protection of policy holders. But there is an area of protection not covered by the Bill which would be covered by the addition of the clause.

I will cite one example of a policy holder in difficulty which shows the useful task which could be performed by a commissioner within the terms of the clause. A constituent of mine many years ago purchased a new television set. On the advice of the man who sold it to him, he took out an insurance policy to guarantee the repair and replacement of any part of the set should it be necessary. He did so at a premium which even now I think was exorbitantly high, but I make no complaint of that. He understood the amount of premium he was to pay and the protection he was to receive. Not long ago a minor fault developed in his set. Under the terms of his insurance contract he sent it back to be repaired. After considerable delay he was informed that the set could not be repaired because a component had a major fault. He was offered back the last premium he had paid and was told that the policy should not continue. When he protested, it was suggested that he might be given a slight discount for the purchase of a new set.

I examined the man's insurance policy with great care and discovered that the major component was specifically covered by the terms of the policy. I did not write to the company about the matter; I wrote to the Minister who at the time was responsible for consumer protection. The Minister's reply stated that this was a matter of contract between the policy holder and his insurance company and should be so dealt with. It surely must be true that in such a situation a policy holder is at a considerable disadvantage and that greater protection should be given to him than is provided by the legislation which is now before us.

There are many people today who are dependent on an insurance policy but are not in fact policy holders. I refer to those who are engaged in making third-party claims against a policy holder. Perhaps as a result of a defect in the policy they might not be able to obtain their rightful legal claim. I believe that it would be useful to have a commissioner who in cases of complaint is in a position to examine a policy carefully. This would also be a considerable protection to those who may wish to make a claim on the policy holder, and a commissioner would be invaluable to assist them in such claims. Such a commissioner could also examine the practice by which insurance companies take premiums on fire and theft claims on the basis of valuations which later the company will not recognise because it regards them as far too high—despite the fact that it originally took premiums on the valuation and has been drawing the premiums for a considerable time.

It has been suggested that the clause is unnecessary and premature. That it is unnecessary is open to question, as I am sure many hon. Members who have sought to deal with complaints about insurance companies on behalf of constituents will agree. The problems thrown up by constituents very much point to the fact that an investigation is necessary, in addition to the sort of consumer protection which exists in other respects. In insurance matters one is dependent on a form of printed legal contract to an extent which does not exist in other areas. One cannot have the sort of protection which normally exists in law against the glib salesman. If a salesman in a shop assures a person that a particular commodity meets the specifications he requires but the commodity fails to do so, that person has a proper claim against the salesman and his employer. But if a glib insurance salesman sells a policy that is not up to specification, the injured party has no call against him unless he can prove that the terms in the policy are not being met. A glib insurance salesman can sell a policy as "comprehensive" when it may in fact contain a great many exclusions. There is the additional danger that somebody might purchase an insurance policy believing that it gives rights which he already has in law anyway. This is another reason for saying that a commissioner could usefully examine a policy holder's complaints.

I accept that the ombudsman cannot wave a magic wand to solve all complaints. What an ombudsman can do in insurance is to examine with a degree of impartiality—impartiality which is not available through the present machinery—the nature of complaint and give advice to the Minister on how regulations may be framed to extend protection. I believe that such a process will not come about without the inclusion of some provisions on the lines of those contained in the clause. If the Minister cannot accept the clause as a whole, I hope he will be able to accept its main provisions which aim at giving the sort of protection that is required by the policy holder.

8.0 p.m.

Mr. Peter Fry (Wellingborough)

I am grateful for this opportunity to say a few words on this legislation because, owing to my being involved in an accident, I was unable to take part in the Standing Committee on the Bill. Like my hon. Friend the Member for Faversham (Mr. Moate), I wish to declare an interest in this debate, as an insurance broker. Having heard some of the comments by Labour Members, I feel that I should seek to correct the picture that has been drawn of insurance being biased on the side of companies against the policy holder.

The hon. Member for Birmingham, Northfield (Mr. Carter) gave certain examples of the way in which he thought policy holders needed protection, but in many cases the protection already exists. The hon. Gentleman spoke of the value of items destroyed by fire. The existing fire market would have enabled the person concerned to obtain full cover for the item. It would enable the person to take out a "no depreciation" contract, or a contract that would take account of annual increased sums insured. Perhaps the hon. Gentleman chose a contract that was a little cheaper than the normal contract, which would mean that the person would not get the sort of cover that he might otherwise have obtained.

The most common cause for complaint by motorists against insurance companies arises from the question of write-offs. I submit that in the vast majority of cases this is not a matter for an insurance company. It goes back to the time at which the vehicle was purchased. It may be that a grossly inflated value was given in the purchase of another vehicle. The point I wish to make is that this is a matter for consumer protection rather than for legislation that seeks to interfere with the insurance companies.

If it were known that there was an avenue into which complaints about write-offs could be channelled in terms of valuations, the person responsible would be a very busy man. Thousands of complaints would pour in, and I am sure that the result would not be very welcome to the motorist. All these complaints would have to be dealt with, and the private motorist would have to foot the bill by paying increased premiums.

Much of the difficulty and the apparent need for greater protection of the policy holder arises from ignorance of the policy and, indeed, of the whole subject of insurance. Much could be done by far greater shopping around on the part of the policy holder. If a person buys his insurance in a local garage or from Uncle Fred who happens to have an agency, that person will not be obtaining qualified advice. After all, one would not dream of buying one's house through the agency of a greengrocer, or one's greengroceries from a garage. Therefore, it is advisable to obtain advice from the right source.

I make a plea for insurance companies to produce policies couched in simple language. The simpler the language the fewer the disputes and misunderstandings that are likely to arise. There is certainly room for improvement in this respect. I should have thought that the new advice bureau, which my right hon. Friend suggested in a speech last weekend, is the sort of place to which aggrieved policy holders could go if they have disagreement with their insurers. They could be given some solid advice at such a place.

I want to comment on the speech made by the hon. Member for Barrow-in-Furness (Mr. Booth). I am perturbed about the lack of protection for someone with a third party claim for damage rather than for personal injury. An enormous gap exists here in insurance legislation. Many innocent parties find that they have no recompense, but this is not the time or place to consider that question. If the hon. Gentleman wishes to discuss the question with me later, we may, between us, be able to approach the Government to produce legislation on the matter, but I do not believe that this clause, or Bill, is the place to do it.

Although I accept that there is disquiet by some policy holders, I believe that the market takes care of most of the complaints, and I do not believe that a director-general could answer all the complaints. Machinery exists in the Fair Trading Bill and other legislation at present going through Parliament, and therefore this clause is unnecessary.

Mr. Nicholas Edwards (Pembroke)

Like other of my hon. Friends, I must declare an interest in this matter. I did not intend to intervene, but I have listened to the debate with considerable interest and feel that I must refer to the Scott Report. It is clear that two types of commissioner are envisaged. There is the type who would have the responsibility of general supervision of the various powers laid down in the Bill. That is what Scott rejects. The Scott Committee felt that it might not be right to divide responsibility, and it could see not reason why an insurance commission would have greater powers or be more effective than a Department in administering the Bill. The Scott Committee may have been wrong. With my hon. Friend the Member for Billericay (Mr. McCrindle), I felt that there were arguments for an independent registrar, or commissioner, rather than the Department of Trade and Industry, to administer the powers provided by the Bill, but that is not proposed in the clause.

I am worried most of all about subsection (3)(b), and suspect that this is the part to which some hon. Members attach the greatest importance. Listening to the hon. Member for Glasgow, Craigton (Mr. Millan) and others who followed him, I wondered in what way this "ombudsman", if one may so call him, would operate. The Scott Committee made some suggestions about this. In paragraph 238 of its report it stated that: it might be the ombudsman's duty to direct the policyholder to the various means of securing redress, or, more positively, to act on behalf of the policyholder to secure redress. He might also seek to obtain by persuasition more than the policyholder's strict legal due. This seems to be a long way from anything we have asked an ombudsman to do. The Parliamentary Commissioner can consider cases of maladaministration, and we know that his scope is strictly defined. It appears from the wording of the clause that it is to receive and investigate complaints by policyholders or potential policyholders in the United Kingdom; and from the implications of Scott that the insurance commissioner would have to act as a poor man's lawyer, or even act for nothing, in giving legal advice on what as my hon. Friend the Member for Faversham (Mr. Moate) has pointed out, is a legal contract. The commissioner would have to suggest—no doubt his influence would be weighted—that a legal contract is to be worthless, and that one of the contracting parties should be overruled.

Mr. Millan

We do not say that.

Mr. Edwards

The Opposition do not say that. If he has to seek by persuasion more than the policy holders' direct legal due—that is the implication—

Mr. Millan

That is what Scott says, but it is not what the new clause says. My concept of how the new clause operates is rather different from that, as I hope to make clear later.

Mr. Edwards

I shall be interested to hear what the hon. Gentleman has to say later. He will agree that the phrase to receive and investigate complaints by policyholders or potential policyholders in the United Kingdom is all-embracing. Let us assume for a moment that the Insurance Commissioner investigates a complaint. If he decides that there is no legal contract and that the premium was not paid to cover a particular matter, but feels that the policy holder did not understand this, did not comprehend the complexities of the matter and was not under any doubt that he was covered, there would be tremendous pressure on the insurance company to settle any insurance, which may be totally unreasonable.

Setting up an independent body to comment and advise on what are legal contracts has very wide-ranging implica- tions, and in my view we should examine the proposal with more care and with greater certainty than we have done so far. We should be making a very big move. I believe that if it were to work at all the powers would have to be much more carefully defined than they are in the clause. We should have to have a great deal of clarification. We might have to have regulation and guidance about the scope of the body's powers. There may be some grounds for limited advice in certain directions, but the clause as it stands is quite unacceptable.

The Minister for Trade and Consumer Affairs (Sir Geoffrey Howe)

In considering the arguments advanced in this debate, it is relevant to refer back to the debate in Committee on the amendment mentioned by the hon. Member for Birmingham, Northfield (Mr. Carter) which advanced a rather different proposal but foreshadowed some of the arguments that we have heard today. But, obviously, it is useful to read not only the report of the Scott Committee itself but the observations made by Miss Eirlys Roberts in her personal note of reservation to the report.

I listened carefully to the observations of the hon. Member for Glasgow, Mary-hill (Mr. William Hannan) and my hon. Friend the Member for Wellingborough (Mr. Fry), because we understand why in the case of each of them it was not possible to take as full a part in the earlier discussions as they would have wished. For that reason we welcome their contributions to this debate.

Having said that about the hon. Member for Maryhill, I hope he will forgive me if I bracket him with the hon. Member for Northfield and say that in so far as either of them sought to suggest that this was not an important part of an important programme of action for the protection of the consumer they did a great deal less than justice to what is contained in the Bill.

The Bill is an essential, though perhaps unromantic, aspect of consumer protection. The interests of the consuming public—in this case the consuming policy holder—are the dominant ones which have led to the formulation and presentation of these proposals. It is wrong to suggest that they have been put forward dominantly in the interests of the insurance industry. Of course we have those interests in mind, because the policy holder and, for that matter, the nation depend upon a prosperous industry. But it is wrong to suggest that in this Bill we are seeing all talk but very little action. This is an important part of a substantial programme of action to protect the consumer. It is the third piece of major legislation passing through both Houses in this Session.

We have to ask whether a case is made out for the separation of the functions identified in this clause from the Secretary of State under the Bill. Is it desirable for such a separation to take place, is the scale of the problems with which the clause is designed to deal large enough to justify separation, and, quite apart from the scale, is the nature of the problems sufficient to justify separation in this way? It is the last question to which my hon. Friends have addressed themselves principally.

8.15 p.m.

On the scale, I was glad that not only my hon. Friend the Member for Wellingborough but the hon. Member for Glasgow, Craigton (Mr. Millan) pointed out that complaints in relation to the industry represented only a small fraction compared with the very large, good and effective activities carried on by the industry as a whole. Of the millions of policy holders who come within the jurisdiction of the Department of Trade and Industry, we received last year 359 complaints about different aspects of insurance. Most of them turned out to relate not so much to disputes as to misunderstandings. A number were not from policy holders but from third parties. A number were resolved by explanation and informal intervention by officials of the Department.

Simply in terms of scale, the establishment of a separate office of this kind for the industry would not be justified. Separation as an idea seems not necessarily to be very wise because one of the valuable aspects of contact between the Department and complainants is that the pattern, volume and quality of complaints can serve as a useful indicator to the Department in its function of overseeing the industry with special reference to solvency. The case being put is for stablishing a registrar or commissioner of a totally distinct and hived-off kind. The case against it is the need to have some contact between the arrival of complaints and the supervision of the industry. The jointness of the functions helps support the supervisory rôle of the Department.

Beyond that, in terms of consumer protection and consumer representation we must remember the important supporting rôle of the Director-General of Fair Trading. It is impossible at this stage to seek to prejudge or predefine the priorities with which the director-general will approach his task. But it is important to ensure that he will be able to play a valuable part in the independent oversight of the insurance industry. That is acknowledged in Miss Eirlys Roberts' personal note of reservation where she identified the rôle of the director-general in a number of places.

It is right to understand that insurance is a service of the kind which will fall within the purview of the director-general. It is a service where inequality of bargaining power is a feature, as it is in many other services. That is why it is properly within the purview of the director-general.

Looking at the provisions of Clauses 2, 13 and 17 of the Fair Trading Bill, we see the extent to which the functions here sought to be assigned to the insurance commissioner can, and will, be discharged by the Director-General of Fair Trading. He will be able to keep under review the practices of the industry, to collect information about its activities so that he can become aware of practices which might adversely affect not only the economic but other interests of policy holders, to inform and assist the Secretary of State, to make recommendations to the Secretary of State, and to make proposals for regulations under Part II of the Bill and, in some cases, to exercise his powers under Part III.

In so far as there is a case for a separate, independent cross-check on the practices of the industry, apart from the Department, that will, or can, be met to a substantial extent by the Director General of Fair Trading. The example given by the hon. Member for Barrow-in-Furness (Mr. Booth) of misleading sales could be considered under Clause 17 of the Fair Trading Bill. It could also be looked at under Clause 42 of this Bill—misleading statements in relation to entering into a contract of insurance.

The point raised by the hon. Member for Glasgow, Maryhill about the small print on insurance contracts could again be looked at under Clauses 13 and 17 of the Fair Trading Bill. In that there is a case for this independent, prodding, surveying official, apart from the Department, we shall find that the Director-General of Fair Trading can reasonably be expected to undertake that task.

Mr. Milan

Is it the intention that in future the various complaints that come to the Department shall be notified to the Director-General of Fair Trading?

Sir G. Howe

I am glad that the hon. Gentleman has mentioned that point. That is an area where there would be a degree of cross-contact both ways. If the Department gets a pattern of complaints which the Director-General could, and should, take on board, the Department will transmit them to him. On the other hand, if the Director-General received a pattern of complaints which he thought ought to alert the Department in its solvency rôle, he would no doubt transmit them to the Department. There should be a close relationship of that kind regarding this industry.

I listened with interest to the arguments advanced by my hon. Friends the Members for Billericay (Mr. McCrindle), Faversham (Mr. Moate), Pembroke (Mr. Nicholas Edwards) and Wellingborough about the pattern which might at some stage emerge for the regulation of the industry.

My hon. Friend the Member for Billericay advanced arguments for a registrar. He said that a commissioner of this kind was certainly a premature proposition at this stage. But I do not discount for the future the arguments which were put forward by my hon. Friend the Member for Faversham.

The important point was made by my hon. Friend the Member for Pembroke who said that the discussion that he and others had in mind involves the creation of a different kind of separate and distinct commissioner. It would need greater clarification of his powers and position than is outlined in the clause. It is possible that in future, with the establishment and acceptance of the Director-General of Fair Trading, on the one hand, and, on the other, the possible establishment of a commissioner for consumer credit, if that is the pattern, the argument will advance along the lines mentioned by my hon. Friends.

But that is not the argument underlying the clause. I suggest, without disrespect to the way that the clause has been moved, that it is either premature or unnecessary. However, it has enabled us to have a useful debate on an important aspect of the extended protection afforded by the Bill.

Mr. Milan

I am rather disappointed by that reply, for one main reason. The right hon. and learned Gentleman was putting forward two contradictory arguments. First, he asked whether it was desirable to separate the functions with which the clause deals from the general regulatory functions of the DTI. His answer was that it was not.

The Minister then went on to say that, basically, in any case, most of the work can be done by the Director-General of Fair Trading. The absolute essence of the director-general's appointment is that he is separate from the Department. It seemed to me, therefore, that the right hon. and learned Gentleman was arguing in an unusually contradictory manner. I suspect that the first part of the argument arises because he does not believe that in this sphere there is a considerable volume of grounds for complaint. I do not accept that.

It is clear from the contributions that we have just heard, even from Government supporters who have argued against the clause, that this is an area in which large numbers of people, fairly or unfairly, often believe they get a wrong deal.

I take the point made by the hon. Member for Faversham (Mr. Moate), who gave an example of a case where the real complaint was that the policy did not cover the area that the policy holder thought it covered. That is a legal matter to which the clause is not basically directed. Obviously, if a person asks for one kind of cover he cannot complain if, having got it, when he makes a claim it does not fall within the cover for which he originally asked.

We want to get at the situation described accurately in Clause 17(2)(a) of the Fair Trading Bill—the situation of misleading consumers as to, or witholding from them adequate information as to, or an adequate record of, their rights and obligations under relevant consumer transactions". This formula fits almost exactly the kind of situation that we have in mind.

The point that arises from many of the complaints that we receive is not that the insurance company is disclaiming liability, where it obviously ought not to do so because the liability is there, but simply that the policy holder—one is not always clear in a particular case whose fault this is—is under a genuine misapprehension about the cover that he has obtained. If he is under a misapprehension, despite all the efforts of the insurance company—the fact that it has stated everything in intelligible language and done everything possible to put it in simple terms—at the end of the day there is nothing that he can do. It is just one of those unfortunate circumstances for which we cannot provide by legislation. If he is in that situation because of the way in which the policy has been drafted, or because the way in which it has been presented is misleading, or because he has been given inadequate information, it seems to me that that is the kind of practice which the law ought to try to put right.

8.30 p.m.

That is the kind of approach provided for in the clause. It is not the approach of the Scott Committee as described in paragraph 238. I accept what was said by the hon. Member for Pembroke (Mr. Nicholas Edwards), that if there is a case in which, perfectly legitimately, a claim has been denied because the liability has not been covered, or there is no question of a policy holder's having been misled or not provided with adequate information, it is unreasonable, in any legal sense, to say that the matter should be put right. It may be something about which a consumer advice bureau, or a Member of Parliament acting as an honest broker—if I may use that expression—can help, but it is not something that one would want a commissioner to investigate.

I am disappointed with the Minister's reply. I take the point that by itself the clause is not adequate to do the whole job, and that a good deal of what it attempts to do can be done under the Fair Trading Bill, but I am doubtful, particularly in the view of the Minister's reply, whether this will get the priority that it deserves or that the job will be done adequately by the Director-General of Fair Trading.

If the job is to be done adequately by the director-general he will have to deal with a host of complaints which some hon. Members on the Government side complain the insurance commissioner would have to consider. If the director-general is to do the job that he needs to do, these complaints will have to be sent to him, and I hope that it will be the practice of the Department to channel matters of consumer concern—not matters for the regulation of the industry—to the director-general so that he can then use the various powers that he will have under the fair trading legislation, such as references to the Consumer Protection Advisory Committee, regulations, and so on.

I am not very confident that that will happen but, on balance, I should be willing to allow the fair trading legislation an opportunity to deal with this problem. If, in the event, it is found that the director-general and this new machinery are not dealing adequate with insurance complaints, the case will be overwhelming for having a separate commissioner. But even then, because of the way in which the legislation is drafted, any complaint going to the insurance commissioner will ultimately have to be channelled through to the director-general in order to get the legislative results that we want.

It is with some reluctance that I do not press the clause to a Division. We shall watch carefully the operation of the fair trading legislation. I am sceptical about whether it will do the job that we would like to see it doing but I am willing, with some reluctance, to give it a trial, and on that basis I beg to ask leave to withdraw the clause.

Motion and clause, by leave, withdrawn.