HC Deb 22 April 1977 vol 930 cc623-33
Mr. Clinton Davis

I beg to move Amendment No. 23, in page 9, line 11, leave out from 'rules' to end of line 21 and insert 'for indemnifying—

  1. (a) practising insurance brokers and former practising insurance brokers, and
  2. (b) enrolled bodies corporate and former enrolled bodies corporate,
against losses arising from claims in respect of any description of civil liability incurred by them or by employees or former employees of theirs, in connection with their businesses. (1A) The Council shall also make rules for the making of grants or other payments for the purpose of relieving or mitigating losses suffered by persons in consequence of—
  1. (a) negligence or fraud or other dishonesty on the part of practising insurance brokers or enrolled bodies corporate, or of employees of theirs, in connection with their businesses; or
  2. (b) failure on the part of practising insurance brokers or enrolled bodies corporate to account for money received by them in connection with their businesses.'.

Mr. Deputy Speaker (Mr. Bryant Godman Irvine)

With this we may take Government Amendments Nos. 24 to 36.

Mr. Clinton Davis

The main object of Amendment No. 23 is to make Clause 13 more general in its scope and to ensure that the protection of the public against loss caused by brokers or their employees is as wide as possible.

Subsection (1) provides, as before, for the Council to make rules for a professional indemnity scheme for practising brokers and enrolled bodies corporate. The changes are largely ones of drafting.

Subsection (1A) is new. Although perhaps 95 per cent. of possible claims against brokers may be met by means of a professional indemnity scheme, there will be a residue of claims for which the indemnity cover—at whatever level it is provided for by the rules—will be insufficient, or which will not be covered by the terms of the indemnity. The new subsection covers these types of case. It is worded in deliberately general terms, since I understand that it is possible that such payments may be made not by the Council from a compensation fund but by insurers under a wider form of insurance policy. This was one of the points raised by the hon. Member for Faversham (Mr. Moate) in another context.

Mr. Welsh

I realise that this "market day" is running late, and I shall be as quick as I can to allow the Bill to proceed. I wonder whether, in this part of the Bill, the Minister took into account the special circumstances of solicitors in Scotland.

The rôle of a Scottish solicitor is an exceptional one, in that insurance broking is only one part of his more general activities. In Scotland our solicitors do not sell insurance so much as advise clients as a part of their more general conduct of affairs.

In setting up such indemnity funds in this way, the Bill is perhaps guilty of financial over-kill, because solicitors in Scotland already have some standing in law in regard to safeguards and professional conduct. All solicitors in private practice in Scotland are required to contribute to a Scottish Solicitors Guarantee Fund, set up and financed by the profession itself, to indemnify persons suffering any loss arising out of a solicitor's dishonesty. In addition, the vast majority of the Scottish profession already carry professional indemnity insurance.

It may be that the Bill is looking specifically at the English situation and has in a sense not looked as hard as it should at the Scottish context and practice. As the Law Society of Scotland has pointed out, it would seem unreasonable to expect a Scottish solicitor to contribute to two compensation funds and to carry two professional indemnity insurance policies when in fact the Scottish Solicitors Guarantee Fund and the individual member's personal indemnity policy will cover all claims which could possibly arise.

I ask the Minister and the sponsor, therefore, to look again at these problems, whether here or elsewhere, and to take into account the special situation specifically with regard to the Scottish solicitors.

Mr. Moate

The hon. Member for South Angus (Mr. Welsh) has just referred to the position of solicitors in Scotland and I shall not speak at length on that subject. I imagine that all hon. Members have received the memorandum from the Council of the Law Society in Scotland and will have understood the hon. Member's point. There is a problem here, inasmuch as solicitors could be faced with extra financial burdens which are quite unjustified.

There is a more general point concerning solicitors throughout the United Kingdom, particularly in the context of the requirement for professional indemnity insurance. Solicitors in England and in Scotland have professional indemnity insurance. As the submission of the Law Society of Scotland makes clear, the society is well aware of the need for such cover. Indeed, it is now a condition of practice, I believe, in the United Kingdom. But many solicitors transact a great amount of insurance business.

Under the rules of the new scheme for professional indemnity insurance, to which solicitors have to adhere, I believe that they are required—I speak from memory and the Minister will no doubt correct me if I am wrong—to insure for a figure of £30,000 per partner. There may be a minimum requirement if there are two partners, or it may be that it is £50,000 minimum for one partner, but, broadly speaking, it is of that order, and three or four partners would have an indemnity of £90,000 to £120,000. That is the sort of figure that has been accepted by the Law Society as being a reasonable level of professional indemnity insurance for solicitors.

Solicitors, we know, are conducting insurance business sometimes on a quite substantial scale. Indeed, one could probably argue that solicitors on many occasions are involved in very substantial estates and handle some fairly high-risk business, and have a degree of insurance responsibility for the way in which that business is conducted. Yet solicitors have a lower level of indemnity than that proposed by the Bill for insurance brokers. I must correct myself there, because the Bill does not propose a level, but the figure of £250,000 has been mentioned over and over again by the sponsors of the Bill. It has been mentioned in the consultation document produced by the British Insurance Brokers' Council, and it might also have been mentioned in the White Paper.

2.45 p.m.

It seems to me unfair that a solicitor will be allowed to continue to transact insurance business with a much lower level of professional indemnity insurance than that which is likely to be adopted for insurance brokers. There is a real problem here. I am as devoted an advocate of wide-scale professional indemnity insurance as anybody. I can even claim a degree of specialisation in the subject. I should like to see all professionals heavily insured for professional indemnity purposes. I should like to see them all carrying the maximum indemnity insurance that they can possibly afford. But that is not to say that we should impose on the small broker an unreasonable level of insurance.

I hope that my hon. Friend the Member for Harrow, West (Mr. Page) will be able to tell us whether consideration has been given to adopting a rather more flexible approach to this question than that suggested so far. A large number of brokers do not, frankly, require £250,000 professional indemnity. Professional indemnity insurance is not cheap insurance. Under the rules for contractors, individuals have to produce £250,000 indemnity, I know, but that is ordinary insurance and is relatively cheap. But £250,000 professional indemnity insurance involves a substantial cost, which could be certainly from £350 upwards. That might not be very much for the substantial broker or for somebody established in a prosperous way of business, but many small brokers would find it a heavy imposition. I do not think that one could always justify £250,000 as being necessary in those circumstances.

My hon. Friend the Member for Harrow, West has on many occasions stressed that it is not his desire or intention to make it harder for the small man to operate. He has expressed his view that the Bill will not prevent the small man from operating, but I put to my hon. Friend the possibility that the Bill could price these people out of the market if we are not careful.

I should like to put the case of the small one-man life insurance salesman who at present operates in a small way of business but manages to make a living as an insurance broker. He is handling, perhaps, relatively low sums by way of insurance and no doubt the business is handled properly. We know that the proposals are always scrutinised by insurance companies with care. Frankly, the risk of exclusion is very small.

Mr. McCrindle

Given that that is the case, would my hon. Friend, as a self-confessed specialist, not confess that the premium charged for the small broker would be infinitely lower for an indemnity of £250,000 than the premium charged for a larger broker for the same indemnity?

Mr. Moate

In general, that must be true, but the figures we have been talking about so far are for minimum premiums, and that is the point. I suppose that if all brokers insured the premiums might come down a bit. A great number of them probably do not carry insurance. If all these small men took a cheaper scheme the premium might come down, but on balance that is unlikely. In practice we are talking of minimum premiums of about £350. That is at the low end of the market. It is quite possible that a figure of £400 or £450 is possible. I do not really understand why the self-employed one-man-band life insurance broker should be forced to pay £ 300, £400 or even £500 for a cover that is not proving to be necessary.

My hon. Friend understands both aspects of the argument. He understands the life insurance operation very well indeed, as well as the professional indemnity market. He will understand that there is not a very strong case for the life broker to have the same limits of indemnity as a man who is dealing in liability business or in substantial materials damage business or even a man dealing in the motor business.

Mr. McCrindle

Does my hon. Friend accept that many small life brokers also sell personal accident insurance, frequently to run alongside the life contract? Does he agree that it is in regard to the personal accident policy that the small broker may need the indemnity, rather more than in respect of the admittedly small sums assured in connection with the life policies?

Mr. Moate

It is always hard to argue on the question of liability, particularly as one spends a great deal of one's time trying to persuade people to take high indemnity limits. There is a strong case for brokers to carry the maximum they can afford, as is true of all clients in the insurance world. But we are talking about placing a statutory obligation on people to carry certain levels of insurance—a statutory obligation to spend certain sums that could place an unnecessary burden upon the their business operations.

It is because I feel that it is an unreasonably high statutory level that I quoted the case of the solicitors who are dealing with personal accident insurance but who carry a limit of only £30,000 per partner. It happens that that scheme is also backed by statute, because it was introduced by the Law Society under the provisions of statutory authority given by this House. I shall not go into the question whether that was a proper use of the power or whether the House intended it, but there is in that statutory scheme that much lower level of professional indemnity requirement than we propose here.

It may be that representations have already been made. We are told that this is the end of a long process of consultation. Representations have no doubt been made to my hon. Friend the Member for Harrow, West and perhaps he has conceded the case, if it is in his power to do so. We must be careful about placing excessive burdens on such people.

This burden does not exist on its own. We might be faced with extra solvency requirements. Brokers might have to have a higher surplus of assets over liabilities than other limited companies or other operators have. In addition, they have all the registration fees to pay. My hon. Friend earlier spoke of fairly low figures for registration fees. I hope that they remain low. Under this clause or a related clause we have the question of a compensation fund. There is no detailed description of how it will be arranged. One imagines that it will be a sort of post-event fund, which will provide for a levy on brokers in the event of payments being needed. If that is not so, it would be helpful to have an outline of how the compensation fund will operate.

There could be costs of not just £300 or £400 but up to £1,000 a year placed on the small broker. I cannot say that I can justify that figure in total, because I do not know what the provisions will be in the rules and regulations, but it would be undesirable to face a large number of small brokers with the difficult decision whether it is worth carrying on as insurance brokers or whether they should withdraw from that profession and call themselves insurance agents, insurance consultants, intermediaries or whatever else is permitted once the Bill becomes an Act.

We have had well-publicised assurances from my hon. Friend about his desire to help the small man and not hinder him—assurances that have been well received—but it is incumbent on him to ensure that the costs are not unreasonable. I do not think that at present we have the means to ensure that they are not. The Government amendment opens the door to allowing excessive impositions to be placed on small brokers. That is one point on which we are entitled to receive some assurance from my hon. Friend.

In the correspondence columns of some of the insurance brokers' journals we can see that this matter has caused concern to a number of insurance brokers. I have received a number of letters from people who have said virtually that. I hope that my hon. Friend will feel that I am simply echoing the expressions of concern voiced by brokers and that he will respond helpfully, in his usual manner.

I turn to the latter part of the new provision (1A) of the amendment, which says that The Council shall also make rules for the making of grants or other payments for the purpose of relieving or mitigating losses suffered by persons in consequence of— (a) negligence or fraud". It should be noted that the amended clause would provide for much wider insurance requirements than merely professional indemnity. It seems to me that the wording enables the Council to lay down rules on such matters as fidelity guarantee insurance—something which is probably quite right—and other classes of insurance. It states rules for indemnifying practising brokers against losses arising from claims in respect of any description of civil liability incurred by them … in connection with their businesses. We are talking about other relevant and important matters besides professional indemnity. I emphasise that because the new provision (1A) refers specifically to negligence or fraud or other dishonesty on the part of practising insurance brokers". This raises the question of the relationship between the rules laid down by the Council in regard to fidelity guarantee insurance and the power that it will have to make grants itself.

I can well understand the case for ex gratia payments to be made on occasions by the Council. It is probably a strong case, but we must then ask whether these will be a consequence only of having insisted that brokers insure for, say, fidelity guarantee, with the failure to do so resulting in the Council's having to make ex gratia payments. There is a relationship here which should be explained.

This leads me to the question how the payments are to be funded. We have not yet been told what the Council's source of funds will be to make grants or other payments as described in subsection (1A). I hope that the Minister will tell us precisely where the money is coming from. Is it to come from registration fees? Is the Council to start off with a fund to be collected by a levy on insurance brokers? Is this a reference to the compensation fund? This is a very important area of debate. We do not know what possible impositions brokers could face with regard to the compensation fund. Is it to be a pre-event fund rather like the Stock Exchange fund, which must be topped up every time there is a loss, or a post-event fund, rather like the Policy Holders' Protection Board Fund? We are entitled to know the intentions of the Government, the sponsor and the Registration Council in this respect.

If the Minister can help us in this matter, he will be doing the House and the insurance world a favour.

Mr. Clinton Davis

The hon. Member for South Angus (Mr. Welsh) was rightly concerned about a specific issue concerning solicitors in Scotland. It is extremely unlikely that most practising solicitors will opt to be insurance brokers within the framework of this scheme. Therefore, there will be no question of financial over kill. We are dealing only with solicitors who opt to be insurance brokers within the scheme.

If the hon. Gentleman looks at Clause 13(3)(g) he will see that the Council may specify circumstances in which exemptions may apply to any of the rules. If in practice a powerful case emerged, I am sure that the Council would be sensitive to the arguments which the hon. Gentleman has raised, which apparently are concerning the professional body of solicitors in Scotland.

3.0 p.m.

The concern of the hon. Member for Faversham (Mr. Moate) is that some solicitors will carry less indemnity insurance than some insurance brokers. That depends on whether the solicitor is an insurance broker under the scheme. In that regard I do not see that the hon. Gentleman expressed any cogent argument.

Mr. Moate

I suspect that the Minister makes that comment because he has not grasped the point that I was making. I was saying that solicitors, even if they are not registered as insurance brokers, will continue to conduct insurance, perhaps on a substantial scale. Under a scheme that has, in effect, statutory backing they have to carry indemnity of only £ 30,000 per partner, which will be much less than the insurance broker's indemnity.

Mr. Davis

We do not know what the brokers will have to carry as there is flexibility. Mention has been made of £ 250,000 but that has not been imported into the Bill. It is a matter for the rules, which will have to be specified. I am sure that the Council will be sensitive to public opinion. When referring to "public opinion" I mean opinion, too, within the profession.

The hon. Gentleman's point is really a non-point because it concerns one of the penalties of the scheme as well as one of the advantages. Those within the scheme will possibly have to undertake certain burdens that those outside the scheme will not have to undertake. Solicitors who are not brokers within the scheme will not have to undertake some of the burdens of the scheme. There is always a burden as well as a benefit to be derived from being a member of a profession. Such burdens are willingly undertaken because of the benefits that accrue to the public at large and be- cause those concerned invest their profession with a certain status and reliability upon which the public can depend. That applies equally in this instance.

The hon. Gentleman then asked how the scheme is to be funded. I can only refer him to Clause 13, which sets out the circumstances and the scope within which the rules might be made. As he well knows, I am not in a position today to indicate how the scheme will be funded. It is a matter that will be subject to the rules. The rules will be within the scrutiny of the Secretary of State and, ultimately, within the scrutiny of Parliament. That is a matter that the hon. Gentleman obviously finds terribly offensive. Surely he is anxious to ensure that the rules are worked out comprehensively and diligently as a result of representations that are made by outside opinion. That is a much better way of proceeding than trying to draft the necessary provisions in the Bill.

Mr. Shersby

For some 20 minutes we listened to my hon. Friend the Member for Faversham (Mr. Moate) expressing his concern about this matter. It seems that again my hon. Friend is making rather heavy weather of something that has to be considered carefully in due course by the Insurance Brokers Registration Council. It may be that the public will look with considerable favour on placing their business with a registered insurance broker who carries a high indemnity and who, they may feel, has their business very much at heart. Perhaps they will look with more favour upon such brokers than upon some other sections of the community that conduct insurance business and do not belong to the Council. Essentially this is a matter for the Insurance Brokers Registration Council.

Surely the House did not need to go into this matter in such detail this afternoon. I hope that on reflection my hon. Friend will feel that this is something that can be dealt with by the professionals who will be involved, who have very much at heart the interests of the brokers, both large and small.

Amendment agreed to.

Mr. Deputy Speaker

With the permission of the House, I shall put Amendments Nos. 24 to 36 formally.

Amendments made: No. 24, in page 9, line 22 after 'indemnity', insert 'and of enabling such grants or other payments to be made,'. No. 25, in page 9, line 25, leave out 'compensation'.

No. 26, in page 9, line 28 leave out 'registered' and insert 'practising'.

No. 27, in page 9, line 29, leave out 'class of registered' and insert 'description of practising'.

No. 28, in page 9, line 32, leave out 'subsections (1) and (2) above' and insert 'the preceding subsections'.

No. 29, in page 9, line 34, at end insert 'or a grant or other payment'.

No. 30, in page 9, line 39, leave out 'registered' and insert 'practising'.

No. 31, in page 9, line 40, leave out 'class of registered' and insert 'description of practising'.

No. 32, in page 10, line 1, leave out 'registered' and insert 'practising'.

No. 33, in page 10, line 2, leave out 'class of registered' and insert 'description of practising'.

No. 34, in page 10, line 18, leave out 'them' and insert 'it'.

No. 35, in page 10, line 21, at end insert— '(ff) may specify circumstances in which, where a grant or other payment is made in consequence of the act or omission of a practising insurance broker or enrolled body corporate, the Council or insurers may take proceedings against him or it in respect of the sum so paid;'. No. 36, in page 10, line 22, leave out 'registered' and insert 'practising'.—[Mr. Clinton Davis.]

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