§ 6. Mr. Nigel Beard (Bexleyheath and Crayford)
If he will make a statement on the prospects for the insurance industry. 
§ The Financial Secretary to the Treasury (Ruth Kelly)
The UK insurance industry is the largest in Europe and the third largest in the world, with £119 billion in annual net premiums, paying out some £240 million a day in pension and life insurance benefits, and £45 million a day in general insurance claims. The best basis for the long-term prospects for saving and the industries that it supports remains a strong economic policy framework, delivering a platform of low inflation and sound public finances.
§ Mr. Beard
I thank my hon. Friend for that reply. Is she satisfied that the accounts of insurance companies fairly represent their liabilities? Moreover, is she concerned that certain regulatory arrangements designed to ensure that companies can meet their liabilities have a cascade effect on equity prices, whereby several companies selling at once generate a fall in equity prices, which itself triggers further concurrent sales from insurance companies?
§ Ruth Kelly
My hon. Friend makes an interesting point. He is right to point out that an over-mechanistic approach to interpreting insurance company accounts could lead to a downward spiral and affect equity prices. The Financial Services Authority is closely monitoring the solvency of life insurance companies and recently wrote to them to emphasise that their main responsibility was to protect policyholders. The FSA made it clear that a breach of the statutory regulatory 441 margin did not represent insolvency. The letter is widely perceived to have alleviated those sorts of market pressures.
§ Mr. John Bercow (Buckingham)
What assessment has the hon. Lady made of the likely impact of the insurers' reorganisation and winding-up directive on purchases of reinsurance and on trade creditors?
§ Ruth Kelly
We are aware of the situation regarding the winding-up directive. The Treasury is actively consulting insurance companies on how that directive can be implemented so as to minimise any potential difficulty.
§ David Taylor (North-West Leicestershire)
Last Friday, I spoke to owners of small care homes at the Caretalk conference at the county cricket club in Leicester. Those owners told me that the cost of their premiums for public liability and employers' liability was ballooning alarmingly. Is it not possible that the insurance industry, in a panic response to its problems, is escalating premiums beyond what is reasonable, and therefore driving some small businesses to the wall?
§ Ruth Kelly
I am aware that small businesses have been severely affected in some instances by recent sharp increases in the cost of liability insurance. That may have been the result partly of underpricing the premiums in the past, partly of an increase in the number of claims and litigation cases, and partly of the fallout from 11 September on the insurance industry. Because of those concerns, the Department for Work and Pensions is leading a review. It will establish a basis of evidence before proceeding further on all of these issues. The Office of Fair Trading is also considering the evidence to see whether there are competition issues in the market. It will report later this spring.
§ Dr. Vincent Cable (Twickenham)
Is the Minister aware of the report of the accountant Colin Slater into the life insurer Equitable Life? The report suggests that, for the best part of 10 years, the company operated a pyramid selling scheme over declaring bonuses and concealing deficits. If Lord Penrose establishes that that is what happened, what action will the Minister take in respect of the negligence of the Department of Trade and Industry as regulator? Will policyholders be compensated?
§ Ruth Kelly
I am aware of the report that the hon. Gentleman mentions. It is clear that the problems at Equitable Life are deep seated and go back for many years. That is why we set up an independent inquiry under Lord Penrose. However, the hon. Gentleman will have to be patient and await the outcome of what is, after all, an independent inquiry.