QUALIFICATIONS FOR REGISTRATION (Hansard, 25 July 1977)

§ Mr. Deputy Speaker (Sir Myer Galpern)
With this we may take Lords Amendments Nos. 2, 3 and 4.

§ The Under-Secretary of State for Trade (Mr. Clinton Davis)
I beg to move, That the House doth agree with the Lords in the said amendment.
Amendments Nos. 2 and 4 are substantive amendments replacing references to "an authorised insurer" by references to "an insurance company". They also, together with Amendments Nos. 1 and 3, change the order of word in paragraphs (e) and (f) of subsection (1) to make drafting consistent with other paragraphs in the subsection.
The words or by an authorised insurer were added at the end of paragraphs (e) and (f) as a result of an amendment tabled on Report by the hon. Member for Faversham (Mr. Moate) and accepted by the House. On reflection, however, these words are not quite appropriate. They are obviously intended to mean any insurer doing business in the United Kingdom. But the phrase "authorised insurer" is in fact defined in Clause 29(1) —in view of its use in Clause 12(3)—to mean only insurers authorised to carry on liability or pecuniary loss insurance business. In these circumstances the phrase "insurance company" expresses the intention of Clause 3(1) more accurately than "authorised insurer".

§ Mr. Roger Moate (Faversham)
The Minister has helpfully explained the object of Amendments No. 1, 2, 3 and 4, and has also told us that these are amendments to the amendment that I moved at Report stage some months ago.
It will be appreciated that these four amendments relate to Clause 3 which is 235 one of the most vital clauses of the Bill. Clause 3 sets out a whole range of permutations describing the criteria necessary for a broker to qualify for registration. It is something of a relief that these various criteria are alternatives, because the word "or" was inserted as a result of another amendment I moved at Report stage. Otherwise the fear was that they would be cumulative conditions. [HON. MEMBERS: "Declare your interest."] I have declared my interest as an insurance broker on many occasions and I am not sure that it is necessary to do so. If I have any interests they are opposite to the course I am advocating here. I gain no financial interest from advocating this course.
The four amendments can be broken down into two groups. The first group requires, in effect, that a person needs to be employed for five years, either by an insurance broker or by an insurance company. It is interesting to note that this clause comes nearer to giving a definition of an insurance broker than any other part of the Bill. It says that a person may register as a broker provided that he has carried on business as an insurance broker, or as a whole-time agent acting for two or more insurance companies in relation to insurance business, for a period of not less than five years. 1.30 a.m.
Nowhere else in the Bill is there a definition of "insurance broker". Nevertheless, we still have the proposition that one shall have had practical experience for five years to secure registration. That, too, is a distinct improvement on the Bill as originally drafted. It then laid down that a person should have been a principal or partner in a firm of insurance brokers before qualifying for registration. I readily concede that there is a distinct improvement on the Bill as originally drafted.
But that original restriction gave rise to doubts about the intentions of those who drafted the Bill. It seemed to indicate a restrictive approach on their part that caused concern about the way in which the Bill was conceived and how it would operate in practice.
That deals with the first group of amendments relating to five years experience through employment with an authorised insurer. The amendment seeks to substitute "insurance company".
236 Amendments Nos. 3 and 4 put the alternative proposition—that, in effect, somebody can be employed for three years by a broker, whole-time agent or authorised insurer linked with the additional condition of some form of examination qualification. We have the alternatives of five years practical experience or three years plus an academic qualification.
It is important to note that even these conditions are subject to a further requirement—Clause 3(2)(b)—that, even though a person has been employed by an insurance company or authorised insurer—that is the point at issue—he must still have had adequate practical experience in the work of an insurance broker". We have this other strange test that, a person having been employed by an insurance company or authorised insurer, he still has to prove that he has gained adequate experience as an insurance broker. That is a difficult criterion to prove.

§ Mr. Richard Body (Holland with Boston)
My hon. Friend is right to make that point. Is it not a fact that, as a result of the Committee stage, a series of "ors" has been inserted so that these different qualifications to enable somebody to go on the register are in the alternative? Is not the position now that one need have only a few minutes' experience in an insurance office to be entitled to be placed on the register?

§ Mr. Moate
I bow to my hon. Friend's considerable legal knowledge, but, with respect, he has probably misunderstood the point that I was making. Paragraphs (a) to (h) are alternative criteria, but the majority are still subject to the general provisions in subsection (2)(a) that a person has to satisfy the Council as to his character and suitability to be a registered insurance broker; and (b) in a case falling within paragraph (a), (b), (e) or (f) of subsection (l) above, that he has had adequate practical experience in the work of an insurance broker". The majority of the preceding criteria are subject to the subsequent requirements of suitability of character, adequate practical experience and so on.
I apologise, Mr. Deputy Speaker, if I was deviating slightly from the amendment, but I was responding to an intervention by my hon. Friend the Member for Holland with Boston (Mr. Body).

§ Mr. Deputy Speaker
Order. The hon. Gentleman has noticed that I am holding a copy of the Bill. I am trying to see how far he is straying from the relevancy of what we are discussing.

§ Mr. Moate
It is significant that we are being asked to amend the term "authorised insurer" to "insurance company". I am surprised that we should be asked to do that because of the amendment that I moved on Report which was accepted. The phraseology seems appropriate. My wording was not challenged by the Minister with all the resources that he has available to him. My hon. Friend the Member for Horsham and Crawley (Mr. Hordern) who has pursued this matter so diligently, did not challenge my wording.
I chose the phrase "authorised insurer" because it seemed logical. A definition appears in Clause 29 of the Bill. It states that authorised insurers" means a person permitted under the Insurance Companies Act 1974 or the Insurance Companies (Northern Ireland) Order 1976 to carry on liability insurance business or pecuniary loss insurance business". I thought that that was a sensible phrase to use to describe a person conducting this business
. Further down the page appears a definition of an insurance company. It states: '"insurance company" means a person or body of persons (whether incorporated or not) carrying on insurance business'. A further definition states: '"insurance business" means insurance business of any class relevant for the purposes of Part I of the Insurance Companies Act 1974, or Part II of the Insurance Companies (Northern Ireland) Order 1976, other than industrial assurance business, and "insurance broker" shall be construed accordingly'. To find out further what an insurance business is we must turn back to the Insurance Companies Act 1974 and from that it seemed logical that "authorised insurer" was the appropriate phrase.

§ Mr. Clinton Davis
Is the hon. Member saying that he prefers the phrase "authorised insurer"?

§ Mr. Moate
It seems to me that there is a case for the phrase "authorised insurer", but I am not sure. The Insurance Companies Act is not as specific as I should have liked. Section 2 of that 238 Act contains the heading "Authorised Insurers" and it refers to the generality of insurance companies operating in the United Kingdom. The description also includes members of Lloyds, friendly associations, trade unions, employers' associations and the generality of insurance companies.
The situation becomes a little confused when one examines another description in Section 83 of the Act where pecuniary loss insurance and liability insurance are defined as separate categories. Longterm insurance business does not include industrial insurance. Liability insurance business includes marine and transport insurance, motor vehicle, personal accident, property, and aircraft insurance. For some odd reason these are all separate whereas under the Insurance Brokers (Registration) Bill pecuniary loss insurance has been segregated and disregarded as authorised insurance.
Therefore, from the 1974 Act, which is what I was referring to when I tabled my original amendments; it seemed to me that by Section 2 all insurance companies came under the term "authorised insurers". It is still not clear why there should now be this odd description. It seems logical and common sense to use the term "authorised insurers" to describe all those companies authorised to transact business under the 1974 Act.

§ Mr. Body
I am not quite clear about my hon. Friend's description of "authorised insurer". The definition in the Bill appears to be clear. Can he say from his experience of the insurance industry whether the phrase "authorised insurer" is being introduced for the purpose of this Bill or is it an accepted term? If it is an accepted term and one that has been used on other occasions, can my hon. Friend say which occasions they would be?

§ Mr. Moate
I think that my hon. Friend is misunderstanding my general experience in this matter. I imagine that those most concerned about this terminology are those engaged in the insurance company business rather than in insurance broking and who have to make regular returns to the Department of Trade.
Generally speaking, the term "insurance company"—the common-or-garden 239 term employed in the Lords amendments —is the one that we would accept. It is strange that we have this total confusion derived from the term "authorised insurer" in the 1974 Act, Section 2 of which sets out those companies which shall be authorised to transact insurance business in the United Kingdom.
I hope that the House will understand why I thought "authorised insurer" was the right term. The inclusion of the words "authorised insurer" or "insurance company" has considerable consequences. At the outset of the Bill the promoters were anxious that persons employed by authorised insurers or by insurance companies should not be able to register as insurance brokers on the basis of their practical experience with insurance companies or with authorised insurers. It seemed to me an undesirable approach to this sort of legislation.
But I am glad that at least the House of Lords has not sought to strike out this provision but has decided that employment by an insurance company or authorised insurer should be a reasonable qualification. In my experience, shared, no doubt, by other hon. Members, many of the people who have established themselves as insurance brokers have done so on the basis of employment by insurance companies or authorised insurers—whichever phrase the House decides to adopt. It is wrong to adopt a more restrictive approach. It conveys confusion of mind or lack of understanding amongst the promoters about the interchange between the insurance company world and the insurance broker world.
1.45 a.m.
To suggest that one ought to have had insurance broking experience exclusively to become qualified as a broker, and not simply to be able to call upon the resources of insurance company experience, is wrong. In support of that argument we managers, inspectors, or general managers of insurance companies or authorised insurers, and I am glad that my hon. Friend the Member for Harrow, West (Mr. Page) eventually saw the logic of the case and it is included in the Bill. It is important to us to decide the right terminology, but the principle is established, and that is a major step forward.
240 It seems that in future, instead of having legislation that prevents tens of thousands of potential insurance brokers currently employed by insurance companies from establishing themselves as insurance brokers, they will have greater freedom to establish themselves in a way that can be only for the good of consumers, of policy holders, and of the country as a whole.
It is the freedom for people to establish themselves that is being taken away. That is why I object to many of these provisions. Where we have had freedom in the past, now there will be regulation. Where we have had freedom that has been beneficial to the consumer, now there will be regulation that will be damaging to the consumer. Where we have had enterprise that has created one of the greatest growth industries in this country and as been manifestly benefical to the people of this country, at home and abroad, in future we shall have greater bureaucracy and control. That is why I object generally to these provisions.
But at least in this respect we have gained a little, and their Lordships have confirmed this by tabling their version of my amendment.
It may be that, in view of the Minister's explanation and what their Lordships have said, there is a case for subsitiuting "insurance company", the ordinary common sense meaning of the word, for "authorised insurers". It would not be my wish to restrict the Bill unnecessarily. Subject to what others say, it may be that this is a sensible improvement and merits inclusion in the Bill.
However, that is only part of the proposition. These amendments refer also to the question of the time factor. They lay down that in one case it should be a five-year practical experience qualification, and in the other that it should be an alternative of three years' practical experience plus the qualification of an examination. In the first place their Lordships sought to delete the three and five year limits, and they then reintroduced them. That gives me the opportunity—I think within the rules of order—to question the logic—if that is the right word—of the proposition that somehow a qualification is equal to two years' experience.
241 I am sceptical about this idea. It is impossible to quantify the value of an examination in terms of practical experience. It is odd that the House of Commons should seek to lay down in legislation that the ACII qualification is equal to two years practical experience, which is what it is trying to do. I do not wish to devalue the importance of the ACII qualification. It is an important one. One would wish to see many more persons in the insurance broking world qualifying with this examination. I do not wish to disparage that, and it may be that by inserting such a provision more people will be encouraged to become qualified.
It is odd that we should seek to lay down the value of a qualification in terms of practical experience. No employer would offer to take on at a certain salary a person who had five years' experience in the industry or three years' experience and the ACII qualification. Insurance broking is a commercial activity. My hon. Friend the Member for Brentwood and Ongar (Mr. McCrindle) always tells us that it is a profession, but I am proud that it is commercial and is highly competitive and successful. I declare my interest. I did not conclude my qualifications, but even if I had, I should still be arguing the same case.

§ Mr. Clinton Davis
On a point of order, Mr. Deputy Speaker. Is it in order for the hon. Gentleman to deploy these arguments at length? The only substantive amendment incorporates a reference to an insurance company instead of "authorised insurer". The other amendments involve a change in the order of words. There is no substantive amendment there.

§ Mr. Deputy Speaker
I was pondering whether it is on order to try to equate a certificate with the ability to work in an industry or commercial undertaking. I think that the hon. Member for Faversham (Mr. Moate) is going a little too far. I do not know his underlying purpose, but he is making heavy weather of the whole business.

§ Mr. Moate
The Minister may be correct in saying that there is only one substantive amendment, but the amendments leave out references to periods of 242 not less than three and five years and insert: insurance company, for a period of not less than five years and the same provision relating to not less than three years. Presumably one is entitled to ask "Why five years in one amendment and three years in the other?" The difference is academic qualification, and I am seeking the justification for the distinction. I do not say that there is no distinction. I merely ask how it was arrived at.
Insurance broking is a commercial business that depends on flair, determination and sales skills as much as on the professional standards of integrity and honesty that have characterised the industry and helped it to its success. It does not depend on academic qualifications, and it is odd that academic qualifications should be one of the criteria of the Insurance Brokers Registration Council. We want to encourage academic qualifications, but to lay down in statute form what their value is in relation to practical experience is a little unreal. Anybody with practical day-to-day experience of hiring and firing will understand the point.
I do not wish to expand on these matters at any length, because there are so many other amendments that we wish to reach, but the rule about five years and three years begins the whole question. In a highly commercial world it is illogical to try to lay down standards of this kind.
I hope that the House will have understood why I thought it right to include the words "authorised insurer" in the first place. The position seems to be somewhat confused by the Insurance Companies Act 1974 itself. However, on balance I accept that technically "insurance companies" in a better phrase than "authorised insurer". It is certainly more common sense and a more common phrase and in that sense it seems likely that one would accept it, but that depends on what other arguments are deployed by other hon. Members.

§ Mr. Body
First let me pay tribute to my hon. Friend the Member for Harrow, West (Mr. Page) for being so successful in piloting the Bill through to this stage and for so obviously mastering all the 243 intricacies of the law of insurance in a way which made me marvel when I read through, as I did, some of his speeches in Committee. Whether this is his Bill or the Bill of some hon. Members opposite I am not too sure, and perhaps as we proceed in this debate we shall see exactly whose Bill it is. I recognise my hon. Friend's motives in introducing the Bill—

§ Mr. Deputy Speaker
Order. I do not wish to rob the hon. Member for Harrow. West (Mr. Page) of any tributes, but we heard all that when the hon. Member got his Bill through the House of Commons stage. Let us get on with the subject matter of the Lords amendments.

§ Mr. Body
I would not have repeated myself, but we do not have a Third Reading at this stage and that was the only tribute that I could pay to my hon. Friend, and I felt that I ought to pay it, particularly if I am in any way guilty of keeping him from his sleep later tonight. The least I could do was to pay that tribute to him.
Clause 3 goes to the root of the Bill. It is, therefore, a clause that we must examine very carefully to ensure that we have the right phase inserted, "insurance company" rather than "authorised insurer", the phrase previously in the Bill. I am not sure whether we are making the right decision in removing the operative words inserted previously in paragraph (e) and (f).
One should be apprehensive about this change that the other place seeks to make. First, the Bill was obviously drafted with great care and the phrase "authorised insurer" must have been chosen with great deliberation. I am at a loss to understand why it was accepted by the Government right through Committee stage and until the Bill got to the other place and then it was suddenly found that the phrase "insurance company" was a better description than "authorised insurer".
What seems to be plain is that "authorised insurer" is a narrower term than "insurance company". My hon. Friend the Member for Faversham (Mr. Moate) has dealt with some of the definitions and I shall not repeat what 244 he said, but it seems to be a great significance that the essential difference is that an authorised insurer is concerned with the carrying on of a liability insurance business, or pecuniary loss insurance business, whereas an insurance company may not do so.
2.0 a.m.
I regret very much that the Under-Secretary of State has not explained a little more to the House why we have dropped down, as it were, to merely an insurance company. It may be that there is a wide range of insurance companies which do not qualify as being authorised insurers in the sense that they do not carry on a liability insurance business or a pecuniary loss insurance business. I do not know whether you have considered that particular point, Mr. Deputy Speaker, but you might have been puzzled, as I have, whether there could be any kind of insurance company that did not embark upon one or other of those two items of business, namely, carrying on a liability insurance business or a pecuniary loss insurance business. One would have thought that that was the sole function of an insurance company, to repair people's pecuniary losses in return for premiums that would be paid from time to time.
Now that the Government have been persuaded at this stage to adopt the term "insurance company", I ask the Under-Secretary of State—and perhaps my hon. Friend the Member for Faversham if he is to reply to this—whether there are not some dangers ahead. If the Bill were to safeguard the public from the sharks, or those who are inexperienced, I should certainly be supporting it, but it is because, in my humble judgment, it will not safeguard the public from the sharks, nor from those who are inexperienced, that I have my reservations about the Bill.
There are three categories of company which may be included in this definition of insurance company yet which, I suggest, should not be. In the first place, it is notorious that there were two or three insurance companies which let their policy holders down in a disgraceful and, indeed, criminal way. I do not know to what extent those companies have now been wound up. Perhaps the Under-Secretary of State will assure us about it. 245 But if they have not been wound up and are still registered, and therefore in a legal sense still functioning, it must follow that any employee, although he may not be actively employed now, might come to acquire a qualification or would be assisted in acquiring a qualification to entitle him to a place on the register.
I am concerned, secondly, with those companies which are not authorised insurers. Despite what my hon. Friend has said in his very careful description of the consequences of this change in the law, I am not at all sure what kind of insurance companies come into the category of being something less than authorised insurers. There must be some of them, certainly, who have not got this permission under the Act to carry on a liability insurance business or a pecuniary loss insurance business, yet are none the less in some sort of cold storage at the moment.
We are all aware of the law that every limited company must have a secretary. Even if the company is not trading or carrying on business in the strict literal sense, it must none the less have a secretary, who may be acting for other companies as well, which in turn may have a certain staff. We all know that there are many firms of accountants which accept the secretaryship of companies, often small private companies, which are not actively trading at the time.
It seems to me that if there were in existance an insurance company which did not qualify for being an authorised insurer and therefore did not have permission to carry on liability insurance business or pecuniary loss insurance business, it could none the less have a member of its staff qualifying for registration under this head although that member of staff had no experience whatever of insurance and, indeed, was a thousand miles away from the practice of insurance. Indeed—I shall be corrected if I have misunderstood—it seems to me that if company secretaries were employed by an insurance company and they in turn had secretaries or shorthand typists, they, too, would come under this head.
The third category of company to which I refer includes those which are not set up primarily for the purposes of insurance. Every company formed today, when settling its memorandum and articles 246 of association, makes them as broad as possible so that no act it does later will be likely to be ultra vires. The drafting of some memoranda and articles is in the widest possible form. Indeed, most companies nowadays go to a law stationer's office where there are standard forms of memoranda and articles adaptable for almost anything—perhaps even making suits or something far removed from insurance, yet having clauses giving power to insure as well as to do many other things.
Are such companies nevertheless insurance companies? I appreciate that "insurance company" is defined in Clause 29 as meaning a person or body of persons (whether incorporated or not) carrying on insurance business". But what is meant by a firm "carrying on"? One may seek the aid of a legal dictionary, but that does not take one much further. In law, one can be carrying on a business although one is not actively engaged in it. That may sound a complete nonsense, but I can take an example from my own profession. A barrister may be utterly briefless—[Interruption.] The hon. Member for Norwood (Mr. Fraser) may know about this from his experience, though limited in the sense that he is not a barrister. Having one's name added to the list on a door at chambers in the Temple puts one in the position of carrying on as a barrister, but one may be wholly brief-less, with no work to do year in and year out.
I assume that that analogy could be applied to insurance companies. There might be those entitled to carry on as insurance companies by their memoranda and articles yet failing to do so because no one was seeking to obtain any policy from them.

§ Mr. Moate
My hon. Friend refers to organisations with wide scope. Does he realise that under the Insurance Companies Act the term "authorised insurer" includes a trade union or employers' association in which the insurance business carried on by the union or association is limited to the provision for its members of provident benefits or strike benefits? Therefore, far from it being a narrow phrase, it seems to include under the 1974 Act bodies which one would not 247 normally have thought of as insurance companies.

§ Mr. Body
I do not know whether my hon. Friend the Member for Harrow, West agrees with that. I hope that he will contribute to the debate and will deal with our apprehensions. What my hon. Friend the Member for Faversham has said seems to make even greater nonsense of the Bill.
I should have thought that "authorised insurer" was a perfectly adequate term. It seems to be understood in law. It should be retained in the Bill and not abandoned for the rather loose phrase "insurance company". I realise that the term "insurance business" is also defined and, to that extent, it may well qualify what I have said. Nevertheless, a further explanation is called for so that we may know what we are about in adopting the phrase chosen in the other place rather than the one which was accepted by this House.
We understand from the definition of an authorised insurer on page 20 of the Bill that it "means a person permitted under" certain legislation to do this and that. How are partnerships affected? Perhaps my hon. Friend the Member for Harrow, West will enlighten me about this matter. I have an open mind about the amendment and about whether we should adopt the phraseology preferred by the other place. Can a partnership qualify for permission under the Insurance Companies Act 1974?
My other anxiety is about the period of years which has been deleted from the Bill. I understood that the prime purpose of the Bill was public protection. I know that that was not quite how my hon. Friend the Member for Harrow, West put it. I think that he gave another reason first. He wanted to strengthen the insurance business and, in particular, to maintain our position in the EEC. He said that that was the first reason for the Bill. But he went on to say that public protection was also a very material argument for the Bill. If that was so, I would support it. But if it is so, surely we should be vigilant about deleting the period of five years. The Lords amendment in Clause 3(1)(e) would have the effect of deleting the period of five years. 248 Surely the door is open to the sharks who, if minded to set out with some wilful intent to defraud the public, could work in an insurance company for merely a week or even less and still acquire that qualification which the other place has now made.
2.15 a.m.
If we are concerned with public protection and with trimming the power of the sharks surely we should be insistent upon retaining that period of time. Equally, our anxiety about insurance brokers having experience is another reason for retaining a period of time.

§ Mr. Moate
It has been repeated often that this is a measure of consumer protection. But has not that argument been shot to pieces on many occasions by the defenders of the Bill who, every time it is alleged that a person could be put out of business, answer that he would not? Even if he were a shark, presumably a person would be able to carry on as long as he did not use the term "insurance broker". He could carry on as an insurance consultant, insurance intermediary, insurance adviser or any other such name. This is not, therefore, a measure of consumer protection.

§ Mr. Body
I agree. That is why this is an unsatisfactory Bill. If we were legislating against the sharks I would be supporting the Bill wholeheartedly.
The term "insurance broker" is used in the Bill but it is not defined. I am disappointed that it has not been defined.

§ Mr. Clinton Davis
It is not referred to in this amendment.

§ Mr. Body
We are concerned with the qualifications of an insurance broker. Clause 29(1) refers to the term "practising insurance broker" but those who read the Bill are invited to construe that term in relation to an insurance business.
However, as my hon. Friend the Member for Faversham pointed out, the mischief of the qualifications that are set out is that those persons who may have those qualifications but who fail to register may carry on effectively as inurance brokers by calling themselves consultants, agents and the rest.
The term "insurance broker" is used by the British Insurance Brokers' 249 Association. I gather that it has accepted a definition which is as follows: persons who, acting with complete freedom as to choice of undertaking, bring together with a view to the insurance or reinsurance of risks"—

§ Mr. Deputy Speaker
Order. I am sorry to interrupt the hon. Gentleman. I know that the hon. Member for Faversham (Mr. Moate) is due another intervention in a couple of minutes. However, we are not dealing with insurance brokers. I know that the hon. Gentleman is struggling hard, but I think that he is introducing extraneous matter. Let us stick to Lords Amendments Nos. 1, 2, 3 and 4 as they appear on the Amendment Paper.

§ Mr. Body
I shall be very brief. I am conscious that I have broken my rule of brevity which I intended to keep.

§ Mr. Deputy Speaker
I am glad to have come to the hon. Gentleman's aid

§ Mr. Body
In my submission the other place has failed to improve the Bill by making these changes.
From an insurance broker, one seeks integrity and an understanding of one's needs. None of these qualifications will do anything to further that aim, which surely must be the aim of everyone seeking an insurance policy. I believe, therefore, that this amendment is a disappointment and that we should consider very seriously whether we should accept it.