Insurance Companies (Hansard, 5 November 1986)

§ Mr. William O'Brien (Normanton)

I beg to move, That leave be given to bring in a Bill to amend the law relating to the commutation of insurance policies and contracts. I am sure that the House will agree that this week or this month, as in every other week or month, some person will surrender their life assurance policy because they cannot afford to continue the payments, for some other reason which could be justified. The case which prompted me to introduce this Bill was when two people decided to marry, each owning an assurance policy. They decided to surrender their individual policies and take out a joint policy which was more suitable to their needs as a married couple.

The present code of practice applied by assurance companies concerning the discontinuation and surrender of life assurance policies is, in my opinion, ambiguous, does not work, and in no way helps, assists or protects policyholders.

The purpose of my Bill is to give protection to people who enter into an agreement with an assurance company, to ensure that a proper and understandable code of practice is introduced and carried out and that fairness is applied at all times to policyholders. The present code of practice states: The intermediary shall draw attention to the long term nature of the policy and to the consequent effects of early discontinuance and surrender. When asked about the consequent effects in real terms—that is, what the policyholder would lose on surrender after two, three or more years—no one can say what they will be. My experience is as follows. A person takes out a life assurance policy with Pearl Assurance, for 10 years. After making payments for nearly two years, the person requests advice on how to obtain a different policy to cover herself and her husband. After making repeated requests for advice and obtaining no satisfaction, the only course open to her is to surrender the policy. Over the period that the policy was in being £156 was paid to the insurance company. Following surrender £106 is paid to the policyholder. In other words, one third of the money paid to the company by the policyholder, plus interest, is retained by the company. On reflection, it could appear that the insurance company preferred the policy to be surrendered than to give additional advice.

When dissatisfaction is expressed by the policyholder and an explanation is requested as to why so much money is deducted from the payments made, it is said that in the early years of the policy commission to the agent, stamp duty, costs and servicing the business are the real reason for the deduction. Even if one accepts that the point made by the actuary for the insurance company is correct, and that there are initial charges, to take over 32p in the pound for every pound paid is exorbitant and most unsatisfactory.

Some policyholders do face genuine hardship. I witnessed people having to surrender insurance policies during the miners' strike, and there is the case I have just referred to, and last weekend, when I held advisory meetings throughout my constituency, a further case was brought to my notice of a person who lost his job in his early sixties. When his employment benefit period had ceased, he applied to the Department of Health and Social 963 Security for supplementary benefit. He was asked what capital he had and what other investments he held. Being the truthful person he is, he declared that he held a life insurance policy. He was told to inquire what the income would be from the asssurance policy if it had to be surrendered. When he had obtained the full information and reported back to the DHSS, he was told to surrender the policy, and for a year or so he has had to provide for himself and his wife on the income from his assurance policy and his savings. When I asked my constituent about his assurance cover he naturally replied that the cover ended when he surrendered the policy.

One can see that that case introduces a different dimension, in which the Secretary of State for Social Services becomes involved. However, I repeat that such action towards policyholders puts them at the mercy of insurance companies and the discretion of the actuary or any other person who decides how much should be paid to policyholders when the policy is discontinued and how much should be retained by the company.

I could quote other cases and examples. I make the plea that there should be some protection for those people by law against insurance companies which, without explanation, deduct over 30 per cent. from payments made on life assurance policies.

If an actuary of an insurance company makes a judgment about how much should be deducted from payments for a life assurance policy, regardless of how long the policy has existed for, the insurance company should make a statement showing what the money that is being retained covers. If the policyholder is not satisfied with the information received, or if answers are not forthcoming, he should be able to appeal to the Registrar of Friendly Societies with confidence because of information that he will have obtained if my proposals are accepted.

We should also consider more information being given to people who intend to take out assurance policies. More information should be given during the interview about the consequences of early surrender or if the policy is discontinued. More information about what a person would lose if the policy were discontinued could be given, rather than just leaving it to the intermediary to draw attention to the consequences.

My Bill refers to the money paid by the policyholder. He should know how his money is divided and who receives what payment for what service. I beg the House to accept the Bill because it is in the best interests of policyholders and offers a more democratic procedure for assurance company practices.