§ [SECOND READING.]
§ Order of the Day for the Second Reading read.
LORD HAMILTON OF DALZELL
My Lords, the objects of this Bill are two—the consolidation and the amendment of the law regarding insurance and assurance. I use those two words advisedly because they are both to be found in the Bill. The word "assurance" is used where life business is dealt with, and the word "insurance" where other forms of business are dealt with. I confess that up till yesterday I was under the impression that the separate use of those words was nothing more than a custom of the trade, but I found on investigation that there is very sound precedent for a separate use of the words. The earliest precedent, I think, goes back to the year 1670. I cannot promise that I shall invariably use the words in the right place myself, but I thought it well to give the reason for their both appearing in the Bill.
As far as consolidation goes, I do not think I need labour the point. The advantage of consolidating the law of insurance is very much the same as the advantage which has been claimed for the many other Consolidation Bills which have passed through Parliament in recent years. It will, I think, obviously be more convenient that the law of insurance shall be contained in a single Act rather than be spread over half a dozen. The more important point in the Bill is the amendment which it is designed to make in the existing law; and here I have a small difficulty. An amending Bill of this sort is necessarily made up of a mass of small details. Any of these details may very properly be dealt with in Committee, but it is quite impossible to mention all of them on Second Reading. What I shall endeavour to do, therefore, is to indicate generally the nature of the alterations in the law as they will affect each different class of insurance.
First of all I ought to point out that the Bill does not strike out any new line in regard to the control of insurance by the State. We have not followed the example of certain foreign countries where there is a very complete, and, I might almost say, a grandmotherly control of insurance. The 129 model that has been followed is the control which has hitherto been exercised over life assurance business. I use the word "control," but in reality companies are given the greatest possible freedom to carry on their business in their own way. The two main conditions imposed upon them are these. First of all every new company before it is allowed to commence business in this country has to deposit with the Paymaster-General a sum of£20,000; and, secondly, each company has every year to file with the Board of Trade its accounts in certain specified forms. The first of these provisions—the deposit of£20,000—has been found to be most useful in preventing the formation of unsubstantial life assurance companies, but it has never been pretended that after the company has collected a certain amount of business the deposit was any protection whatever to the insurers, because£20,000 might very likely be but a small fraction of the liabilities of the company. The real security afforded to the insurer in the case of established companies is the publicity given to their accounts by the Board of Trade. The two main provisions of this Bill consist in extending to other forms of insurance those two provisions which have hitherto been confined to life assurance companies. Those two provisions have raised British life assurance companies to a very high level indeed—a very much higher level than they ever attained before the passing of the Act of 1870.
There is undoubtedly a necessity for extending these provisions to fire, accident, sickness, and bond investment companies. They have already been extended by the Act of 1907 to employers' liability companies. I take the case of fire companies as being typical. The great majority of British fire companies are beyond question sound, but there have been cases—I do not know whether there are now, but there certainly have been cases—where that soundness has not existed. Particularly has this been the case among British companies carrying on business abroad, of which very frequent complaints have been made by our Consuls. I do not know why, but for some reason or another Turkey and Norway seem to have been selected principally as the field of operation of these concerns, many of which were nothing better than a swindle. The most impudent case of all, the case 130 I should like to quote as showing the length to which it is possible to go under the existing law, was that of a company called the Credit Foncier Company—a British company registered in this country and which carried on considerable fire insurance business in Constantinople. When this company failed to meet its liability it was ascertained that its paid-up capital amounted to exactly seven sovereigns. A thing of that sort must be very bad indeed for British credit abroad, and it ought not to be possible that it should happen. It is, of course, a monstrous exception to the usual stability of British fire companies, but there have unfortunately been other cases of companies whose capital, though far more than£7, was, nevertheless, quite inadequate in view of the risks which they cheerfully and hopefully undertook.
This applies also to other forms of insurance, such as accident and sickness insurance, to meet which risks a number of companies are in existence. Most of these companies, again, are perfectly sound concerns, but there are some which have started business with a financial backing altogether inadequate unless they are very lucky and very discriminating in the risks they undertake. And I may say that luck and discrimination are just what you do not expect to find in these cases, because the people who have first-class risks to insure naturally go to the established and sound companies, and the new and doubtful ones have to take what is left, so that disaster is very likely. This Bill provides that all new companies, with whatever class of insurance they may deal, shall deposit a sum of£20,000 before they will be allowed to commence business, and they will also be obliged to file their accounts with the Board of Trade in certain forms which are set out in the Schedules of the Bill.
Then there is another class of insurance also dealt with—bond investment companies. They also would come under the same rules, and under Section (E) of the Fifth Schedule of the Bill it is provided that they will have to give statistics of the number of policies which have lapsed during the past year and particulars of the conditions upon which policyholders allowed to surrender their policies should they desire to do so. That is the same form of protection which is given 131 to other classes of insurers, and it seems really to be the only adequate form of protection and the only adequate way of bringing to the notice of people who take out these policies the real nature of the bargain into which they enter.
I have alluded to the deposit of£20,000 which is now required from life companies. At present a life assurance company is allowed to withdraw that sum when the accumulated life funds amount to£40,000. A Select Committee of this House, over which my noble friend the Lord Steward presided, recommended that that practice of allowing the withdrawal of the deposit should be discontinued. That is done by the Bill. Accordingly, all life companies which have exercised that right will now be called upon to redeposit the money. I may say that the representatives of British life assurance interests have been approached on this matter, and I understand that they have signified their willingness to do this. It is thought that this provision will be particularly useful in the case of foreign companies. My noble friend's Committee recommended that no discrimination should be made against foreign companies, and in that recommendation they were supported by the almost unanimous opinion expressed by the representatives of British assurance interests who came before them. The Select Committee recommended that every company which carries on business in Great Britain should be required to maintain the deposit of£20,000 so long as any policies continued outstanding in this country. The Committee said—We are aware that this sum would be of littl use to meet the liabilities of large companies which do business in this country, but we feel that if this amount were deposited and could not be withdrawn by the company it would afford an absolute guarantee to policyholders in foreign countries of being able always to proceed, if necessary, against such companies in the Courts of this country.I may add that the object of the Committee has been furthered by a provision of the Companies Act of 1907, which requires that all foreign companies who have a place of business in this country must file with the Registrar of Joint Stock Companies the name and address of some person resident in the United Kingdom who may be sued on their behalf. I do not think I need say anything more about the life assurance companies.
132 Clause 34 of the Bill deals with collecting societies and industrial insurance companies. The clause is designed to regularise the position of these great undertakings, and to facilitate the conversion of collecting societies into companies where that is thought to be desirable. I may say that this has been rendered necessary by the enormous growth of some of these societies. One society alone, I am informed, has a membership of 2,200,000 and has altogether outgrown the machinery of the Friendly Societies Acts under which it is registered. This Bill is designed to give to policyholders and intending insurers the fullest possible protection which can reasonably be given, and, at the same time, to avoid any undue interference with the business of the companies. If your Lordships agree to its being read a second time to-day I will undertake not to put down the Committee stage for three weeks, so that if we have unwittingly trodden on anybody's toes he may have an opportunity of coming to the Board of Trade and explaining his case to us, when I can promise that it will receive the fullest and the most careful consideration.
§ Moved, That the Bill be now read 2a.—(Lord Hamilton of Dalzell.)
§ LORD AVEBURY
My Lords, my noble friend has given a very clear and sufficient explanation of the Bill which he is asking the House to read a second time, and I think your Lordships will agree with him that it was unnecessary at this stage to go into more details. I believe he is correct in stating that the life assurance companies are quite prepared to agree to what has been suggested by His Majesty's Government, and to give a general support to the Bill. They will be obliged to the noble Lord for his promise to allow a reasonable time before taking the Committee stage, particularly as there are still points which we hope His Majesty's Government may consider; and I trust that in regard to such suggestions of the insurance companies as may seem to be reasonable an agreement may in the interval be arrived at with the Board of Trade.
There are still points on which many of the insurance offices would like to see some change in the Bill. In the first place, as regards the reserve for unexpired risks, if I understand the Bill correctly no amount is laid down in the Bill. Insurance offices 133 generally consider that 33⅓per cent. is about the minimum amount that ought to be held as a reserve for unexpired risks. The general opinion is that it would be very desirable to settle some minimum percentage. Another point arises with reference to foreign deposits. It is thought that the exception which is made in Note 1 of the Third Schedule—NOTE 1.—When part of the assets of the company is specifically deposited, under local laws, in various places out of the United Kingdom as security to holders of policies there issued, each such place and the amount compulsorily lodged therein must be specified in respect of each class of business, except that in the case of fire insurance business it shall be sufficient to state the fact that a part of the assets has been so depositedought also to extend to employers' liability business.
With reference to amalgamations between companies, one of the provisions laid down in the Bill is that in the case of an amalgamation or transfer there shall be a notification to every policyholder of each company. So far as life policies are concerned, no doubt there is sufficient reason for that, but I ask my noble friend to consider whether it is really necessary in the case of fire, accident, and employers' liability policies. These policies are for short periods, and as regards employers' liability it seems the less necessary because it appears to be already covered under the law as it now stands. In any case it seems to most of us that it would be practically impossible in the case of amalgamation to give notice to all the policyholders if it is to apply to fire, accident, and employers' liability business. As regards employers' liability business, everybody to whom an amount is due or a weekly payment is payable would come within the definition of policyholder, and it does seem unnecessary that they should all have notice, however essential that may be in the case of life policies. There are several other minor points with which I need not trouble the House at this stage; and I hope that before the three weeks have elapsed many of them may be satisfactorily settled with the Government.
THE EARL OF MAR AND KELLIE
My Lords, I think this Bill will be welcomed, not only by the public, but by the insurance companies themselves as an attempt to put the law in relation to those companies on a more sound and improved 134 footing. There are, however, one or two points to which I should like to call your Lordships' attention very briefly.
Clause 1 denotes the various classes of insurance business to which the Act is to apply, and subsection (c) of that clause applies its provisions to accident insurance, which is defined as—the undertaking of liability under policies of insurance upon the happening of accidents whether fatal or not disease or sickness or any class of accidents disease or sickness.It appears that under this subsection the framers have in view personal accident insurance only, but as the subsection reads it would also include liabilities which many companies incur resulting from personal injuries under such contracts as property owners', third party, and vehicle owners' liability policies. Under these policies the risks of damage to persons and to property are included in one premium, and, in rendering the account which will be required, on the revenue side will appear the whole premium, while on the expenditure side only the amount paid in respect of damage to persons. It may be the intention to include this class of insurance under this subsection, but, if so, I suggest that the phraseology of the subsection should be made somewhat clearer.
Clauses 30 and 31 provides that the Bill is not to apply to fire insurance and accident insurance companies existing prior to its passing, and Clause 32 provides that employers' liability insurance companies are not affected by the Act if they were in existence prior to August, 1907, the date of the last Employers' Liability Act. Therefore these companies are not required to make a separate deposit against each class of insurance business transacted. I think it very desirable that, as in the case of life business, the Act should be made retrospective in all its provisions, and that the old companies as well as the new companies should be required to make and maintain a separate deposit in the case of each of the four classes of insurance business described in Clause 1.
Again, subsection (e) of Clause 32 provides that under certain conditions securities may be released in the case of employers' liability insurance. This subsection is obviously taken from the Life Assurance Companies Act of 1870, which 135 I understand is repealed by this Bill. I cannot see why securities should be released in the case of employers' liability when they cannot be released in the case of fire, life, or accident insurance business. But these are really Committee points, and I will not pursue them further at this stage. I hope that when the Committee stage is reached the Government will be prepared to accept Amendments for improving and strengthening the Bill. In any case, speaking as a director of an insurance company and a member of the insuring public, I should like to express a hope that the Government will find time to place this measure on the Statute-book this session.
My Lords, I venture to think the insurance companies will heartily support His Majesty's Government in their endeavour to pass this Bill during the present session. As representing two of these companies I would thank the Government for the way in which they have met the suggestions made, and I am hopeful that other suggestions will be accepted at a later stage. There are one or two points to which the noble Lord did not refer in moving the Second Reading of the Bill. One is the position of members of Lloyd's. It is not quite clear whether the term "underwriter" is sufficiently defined, and whether it might not be held to include every one of those members of Lloyd's who puts his name to a policy. I understand that it is not the intention of the Government that each one of the members of Lloyd's whose name is on a policy should deposit the sum mentioned. Further, I think, on behalf of the companies, we might ask the Government to consider, in some matters in which the insurance companies are, in their estimation, put at a disadvantage as compared to some members of Lloyd's, whether it may not be desirable for them to accept an Amendment which would place the companies in the same position. I understand that the object of the companies as well as of the Government is that any one who is doing business with absolutely inadequate capital should not be allowed to go on, either at home or abroad, and that there should be publicity given to the financial position of those who are undertaking very large liabilities. I will not trespass further on the time of the House to-day, but I hope that in such an important matter, involving large 136 interests, there will not be undue haste, but that full consideration will be given to the suggestions made. We have had experience in connection with Acts relating to employers' liability and workmen's compensation of the many pitfalls which arise in consequence of hasty legislation. I thank the Government for the way in which they have met the suggestions that have been made, and I join with the noble Lord who last spoke in expressing the hope that the Bill may become law this year.
§ LORD COURTNEY OF PENWITH
My Lords, the noble Lord in charge of the Bill has intimated that three weeks will be allowed between this and the Committee stage, and I think one may hope that during the interval the opportunity to which he referred of a conference between the bodies interested and the Board of Trade will be so utilised as to remove the causes of the criticisms which now attach to certain provisions of the Bill. On the whole, I think the Bill is welcomed by insurance companies.
The Bill does involve a somewhat new departure in what may be called, perhaps, its leading first principle—that of requiring from fire insurance companies a deposit of£20,000. Fire insurance contracts differ essentially from those of life assurance. The circumstances in connection with the former are temporary; the contracts may be modified, changed, or dropped. If an insurer thinks he cannot trust a company and any reason arises suggesting the propriety of transferring his business to another company, he can, with little difficulty, make the requisite change. It is essentially different in the case of life assurance, where the contract is made for many years and the contracting party enters into a contract from which he cannot afterwards depart without great loss—possibly the loss of the whole of the advantage he had in view when he entered into the contract. It is obvious that a person effecting a policy of life assurance ought to be protected in the way proposed; but no such reason can be discovered in the case of fire insurance, and the introduction of that principle here is a novelty.
My noble friend suggested a reason for this provision in the unfortunate fact that certain companies have been estab- 137 lished, though they have not done business, in this country, and have deluded residents in other countries, especially in Turkey and in Norway; and perhaps for the honour of our name we ought to interfere to prevent this happening in the future. But I would point out to my noble friend that he is introducing this principle of requiring a deposit from fire insurance companies only in the case of those companies which come into existence after the passing of the Bill. That is, in my opinion, straining the doctrine of vested interest very hard. I am sure that no respectable company would hesitate to make the deposit, and if it is unfortunately the case that many recent companies have started into existence with inadequate capital, or which have been the instruments, or capable of being made the instruments, of such deceit abroad as my noble friend referred to, then such companies had better be brought as soon as possible under the provisions of the Bill. I think we shall have to consider the question of making the provision to which I have referred apply to existing companies.
It follows from requiring a deposit from fire insurance companies that the question to which my noble friend who has just sat down referred arises—What are you going to do in the case of underwriters at Lloyd's? An underwriter under the Bill as it stands is required to make a deposit—a limited deposit, but a deposit. The members of Lloyd's are exempted from making a deposit as long as they comply with the rules of association of Lloyd's. That seems to me a very singular position to assume. It is a matter of delicacy, but it will have to be considered if you are to make your legislation consistent.
There is another provision in the Bill requiring foreign life assurance companies which do business in this country to make the deposit and publish accounts in the same way as our companies. That, I think, differs in some degree from the conclusion of the Select Committee of your Lordships' House which sat upon this subject and presented a Report three years ago. That point, however, can be cleared up in the interval between this and the Committee stage. I will not dwell upon it further now, except to say that it raises some very delicate considerations with respect to international comity of legislation in matters of trade. I note the assurance given by my noble friend that an 138 interval of three weeks shall elapse before the Committee stage is taken, and I hope that during that interval the conciliatory action which has already, I know, been adopted by the Board of Trade in conference with representatives of insurance companies may lead to a settlement of minor points, so that the Bill may become law this session.
§ THE MARQUESS OF SALISBURY
My Lords, I do not desire to offer any remarks to your Lordships at any rate on the present occasion, because, as my noble friend Lord Mar said just now, all the questions which have been raised are practically Committee points. I do not think the noble Lord opposite has any reason to complain of the manner in which the Bill has been received. It has been received with general favour.
The only point which has been really dwelt upon has been the question of whether the£20,000 deposit in the case of a fire company should be made retrospective or not. As. the noble Lord who has just sat down said, the provision in Clause 1 of the Bill is a new departure, and primâfacie one would expect that a new departure would not be made retrospective in character. But that is really a matter for the facts of evidence to determine. I had the impression that there were not existing at this moment a material number of the bogus companies of which the noble Lord spoke. If there are a large number that require to be controlled, that might be a good reason for making the provision retrospective. If, on the other hand, when we come to consider the Bill in Committee the noble Lord, on behalf of the Board of Trade, is able to assure us that there are none, or very few, then one would be rather inclined not to make it retrospective. But that is a matter which can be discussed in detail when we reach the Committee stage.
The only other remark I am tempted to make will take the form of a general observation. When we are dealing with these Bills which are in a large degree consolidation and in a small degree amending Bills, would it not be possible so to print them that there might be some indication on the face of the Bill as to what is consolidation and what is amendment? Many of your Lordships are very hard-worked men, and it would save an immense amount of trouble if my suggestion could be carried out. Matters may, of course, be so dovetailed as to render this impracticable, but it very often is not so, and if the 139 noble Lord will devote his ability to that point in regard to Board of Trade Bills, in which this phenomenon frequently occurs, it will save considerable time.
§ THE LORD STEWARD (EARL BEAUCHAMP)
My Lords, I think His Majesty's Government have every reason to be gratified by the reception which has been given to this Bill, and I hope for the measure an easy passage through your Lordships' House. I am sure your Lordships will agree that for a Bill of this technical character, the course suggested in regard to conference between the bodies interested and the Department concerned is probably the best method of procedure.
The noble Lord, Lord Avebury, referred to the exception which is made in favour of fire insurance offices in Note 1 of the Third Schedule, and he was anxious that that exception should be extended to companies which do other classes of business besides fire insurance. The noble Lord probably knows that this exception as it stands in the Bill does not meet with universal approval, and that there are those who think that the exception should not be allowed to remain. His Majesty's Government, therefore, are betwixt two fires. The noble Lord behind me, Lord Courtney, seemed to object to the inclusion of fire insurance companies at all in this connection, and he laid emphasis upon the difference between the business conducted by a fire insurance and life assurance office.
As to the matter of accounts, I regret that although I was Chairman of the Select Committee which went into this matter I cannot safely charge my memory with the details; 140 but I have a very clear impression that the details with regard to accounts which are asked for in this Bill in the case of foreign companies doing business in this country are practically those already required in the United States and in other countries. Therefore accounts of that kind will not inflict any great hardship on the various companies. The noble Marquess who has just spoken referred to the point as to whether the provision regarding fire insurance companies should be made retrospective. I am sorry that the question of fire insurance companies was not included in the terms of reference to the Select Committee. On that account we were unable to go into the question.
The suggestion of the noble Marquess that there should be some distinction made in Bills between what is mere consolidation and what are matters of amendment has been brought forward more than once by noble Lords on both sides of the House. My impression is that this is not entirely a matter for any Government Department. I think the suggestion would be very useful and of great assistance, but I rather think it is one which should come before the House of Lords Offices Committee. The matter of printing is not directly under the control of the Government in this House, and certainly it would be necessary to take the Committee's advice and the advice of the printers before anything could be done.
§ On Question, Motion agreed to: Bill read 2a accordingly, and committed to a Committee of the Whole House.
§ House adjourned at twenty-five minutes past Six o'clock, till To-morrow, half-past Ten o'clock.