HL Deb 11 July 1935 vol 98 cc278-88

Order of the Day for the Second Reading read.

THE LORD CHANCELLOR

My Lords, the Bill to which I ask your Lordships to give a Second Reading is a Bill which is designed to remedy a deficiency which has made its presence apparent in the Assurance Companies (Winding Up) Act of 1933. As your Lordships know, it is now compulsory for persons using motor cars and mechanical vehicles on the public roads to take out an insurance policy against third-party risks. The object of that, of course, is to ensure that anyone who is unhappily injured by any fault in driving shall be sure to recover the damages which he or she may sustain. Unfortunately, it has turned out in experience that it sometimes happens that the company with whom the insurance policy is effected is not in a position to discharge its liability. Parliament recognised in 1933 that it was eminently undesirable that we should enact that these policies should be taken out, in order to make sure that damages should be recovered when they are sustained, and then to leave it possible for a company in an insolvent condition to be carrying on that business, and so to deprive the public of the security which we thought we were giving. In those circumstances the Act of 1933 gave power to the Board of Trade in certain circumstances to inspect the accounts of companies, and to apply for winding up orders.

The Act of 1933 gave power to the Board of Trade to take action when, in the words of the Statute, "it appears to the Board of Trade that there is reasonable ground for believing that an assurance company is insolvent." The Board of Trade has been advised, and I have no reason to doubt the accuracy of the advice, that in order to satisfy that condition they must be able to produce prima facie evidence of the insolvency of the company. Now, the question whether the company is insolvent is the very question which they desire to investigate, and in certain cases to appoint an inspector to investigate, and the position under the present law is that the very fact which the Board of Trade is intended to find out, and in regard to which it is intended it shall have power of inspection, has first to be prima facie proved to the Board of Trade before it can act at all. In those circumstances it has been thought necessary to strengthen the power of the Board, and the proposals which the Government have thought it right to bring forward involve that the Board of Trade shall have the right to require a company to give such information as will enable the Board of Trade to ascertain whether it is insolvent, and if the company either will not give the information or the information discloses a doubtful state of affairs, then for the Board of Trade to appoint an inspector.

Obviously, your Lordships may say that if that were left to the untrammeled power of a public Department, it might be that we should have too great a responsibility placed upon a possibly bureaucratic office. Accordingly care is taken in the Bill to provide that if the company objects to give the information or if it objects to the appointment of an inspector, then application has to be made to the Court, and the Court has to determine that the information is necessary in order to ascertain the solvency of the company or that the appointment of the inspector is necessary for that purpose, before the order can be made. I venture to think that that provision is not an unreasonable one in the light of the experiences of the last few years.

I have to add that before introducing this Bill the Board of Trade thought it right to consult the British Insurance Association, which is the association representing the great insurance companies of this country. The association have always taken the view, and still take the view, that these powers ought not to be confined to the case of companies, and would like to see them extended to the case of individuals. That would involve a very much wider extension of the law than it would be possible to get through at this season of the year and would involve very radical changes in our procedure: and the association, recognising that fact, while they still would desire that the law should be extended to individuals, still have recognised the urgency of the present problems and have intimated that they agree with the principle of the Bill.

I would desire also, in order to avoid misconception, to state that, although in the view of the Government these powers are necessary in order to provide complete protection to the public, it is only in the case of an infinitesimal proportion of the insurance companies of this country that any question of this kind can arise. Fortunately we have a system of insurance built up through a long series of commercial enterprises and a long business experience in this country which is probably unrivalled in any country in the world, and there is no question at all that the great insurance companies of this country are as strong and as safe as any institutions could possibly be. It is only to deal with the very small minority of cases which, although they are insignificant numerically, yet in the individual case may cause substantial -harm and damage to the individual, that we have thought it right to ask your Lordships to give these additional powers. I beg to move.

Moved, That the Bill be now read 2a.—(The Lord Chancellar.)

VISCOUNT ELIBANK

My Lords, I rise to support this Bill for reasons which I will state. As the noble and learned Viscount has said, insurance companies have taken part in the preliminary discussion of its provisions and, recognising as they do that the amendment proposed is reasonable, they have offered no opposition. Nevertheless, it would be dealing with the subject more adequately and comprehensively if there were passed into law with some amendments the Insurance Undertakings Bill, which has lain dormant for some years. Their attitude—and I am sure your Lordships will agree with this—is a further instance of the strength of the tradition of service by which the insurance companies are moved in all matters affecting the public interests, and I think the noble and learned Viscount acknowledged that in the words that he spoke. But it would be wrong—as the noble and learned Viscount has also acknowledged—to assume from the companies' attitude towards the Bill that there is no feature in this legislation to which they take exception. There is, in fact, one serious evil to which reference has been made, to which I feel it my duty to direct the attention of your Lordships' House, because it would be unfortunate if the support which the companies are prepared to give to this measure should be interpreted at any subsequent time as acquiescence in its shortcomings.

Your Lordships will have observed that the powers conferred upon the Government by the principal measure which this Bill seeks to amend are exercisable only in respect of certain insurance companies, as has been stated. It is a matter of common knowledge, however, that the conduct of insurance operations in this country is not confined only to insurance companies, but is shared in by syndicates of private underwriters and by mutual associations. It is true that the circumstances which prompted this legislation and the present amending Bill arose in connection with certain small insurance companies, but, looking at the history of British insurance as a whole, the cases where a British company has defaulted on its obligations are extremely rare; and it is no exaggeration to say that the British insurance companies, many of whose names are household words throughout the world, stand for all that is best in British commercial life.

And yet the Government, while taking, for the protection of the public, powers in respect of the whole body of insurance companies, have not taken any steps to extend those powers to deal with any other classes of insurers, such as those that I have just mentioned. The insurance companies are unable in equity to admit or to acquiesce in the principle of this discrimination, but, as I have already indicated, it is not proposed in any way to hinder the passage of this Bill by seeking its amendment. I am content to-day to bring to the notice of the Government the view that there should be at an early date legislation to bring all insurers, of whatever nature, within its scope, and to make it plain that the acceptance of this Bill as it stands in no way involves acceptance of the principle of discrimination which it contains.

LORD ELTON

My Lords, this Bill comes before us with the special advantage of being presented with all the customary lucidity and impressiveness of the noble and learned Viscount on the Woolsack. It appears to me to be yet one more contribution to that admirably intentioned, but necessarily piecemeal and restricted process of erosion which the Minister of Transport is conducting at the circumference of the road problem—a problem which I myself am convinced will only be eventually solved by much more explosive act-ion at the centre. Unfortunately, it has to be admitted that at the moment that snore drastic and con prehensive action is not entirely within the power of the Minister of Transport The present position seems to me exactly to reverse the circumstances in a familiar fable of Æsop. The British public appears to resemble the lion which has got itself inextricably entangled in the net of road slaughter, and your Lordships will doubtless remember that the powerful and irritable animal was eventually liberated by the inconspicuous activities of a benevolent mouse. The Minister of Transport, relying on literary precedents, is presumably trying to re-enact the part of that gifted rodent. My own view is that it is only when the lion itself can be persuaded to lash itself into sufficient frenzy to break its own way out of the net that the road problem will be solved. However, it has to be admitted that the temper of the public has not yet risen sufficiently for that to be expected in the near future, and consequently we have to be content with a series of partial erosions of which this is an instalment.

For the present instalment I, for myself, would say what one finds oneself saying about so many Bills, that we are very grateful but that we wish it had gone a good deal further. I do not want to traverse any of the ground which has been covered with such admirable and lucid brevity by the noble and learned Viscount, but I would like to ask him: Is it not true that before commencing motor insurance business it is only necessary to deposit £15,000, and is not that sum entirely independent of the volume of business to be transacted; so that if any of your Lordships were to decide for one reason or another not to insure your car before you took it on the road, you would yourselves be required to make a deposit of £15,000? If that is so it is obvious that there is no guarantee that a business is adequately equipped for motor insurance before it starts business. I would like to make it clear that I am speaking only of the few sinners and not of the many righteous, and I am not in. any sense calling in question the well-deserved tributes paid to the insurance business in general both by the noble and learned Viscount and by the noble Viscount who has just sat down.

I would like to ask the noble and learned Viscount whether it would not be possible at a later stage to consider altering the permissive "may" into the mandatory "shall." Is it not possible that, if we leave the permissive "may" in the Bill, the Board of Trade will almost inevitably wait before acting until there is some suspicion about the stability of the company in question? If that is so, are we not reintroducing ourselves to the old vicious circle? Once it is recognised that the summons to provide evidence implies some stigma, some suspicion of insolvency, then it seems to me the Board of Trade is all the more likely to give the company in question the benefit of the doubt, all the more likely to be reluctant to issue that summons. Just as when a private citizen is placed in the dock there is necessarily some stigma on him even if he is triumphantly acquitted of all the charges against him, so is it also likely that there will be some stigma upon a company which is selected out of all the companies as the one of which it is to be required that it shall furnish evidence, even if it should succeed in completely establishing its own solvency. We all know that Government Departments are traditionally soft-hearted. I. can understand the Board of Trade saying: "In the interests of the shareholders of this company we must wait a little longer, we must give it the benefit of the doubt, before we subject it to this inevitable stigma." I may be entirely wrong and the noble Viscount will tell me if I am wrong; but, if that is so, shall we not be back where we were under the Act of 1933? Would it not be better to substitute the mandatory "shall" for the permissive "may" and thereby transform a selective system into an automatic system? That is my first point.

My second point is this, and I hope I am not asking too much. I, personally, should be very glad to see, not only regular automatic provision of proof of stability of insurance companies. I should also like to see regular and automatic provision of statistics on certain other matters which are of great and growing importance to the State and to the general public. I think I am right in saying that when the Road Traffic (Compensation for Accidents) Bill was before a Select Committee of your Lordships' House, that Select Committee found itself considerably hampered in its activities by lack of statistics which in some cases, I believe, the insurance companies were not too ready to provide. I, for one, should like to see a regular return of statistics, for example, as to the number of claims made, the number paid by settlement, the number awarded in Court, the number declined, and the total sums paid.

All these are matters of great and growing importance, not only to the Board of Trade but to the Minister of Transport and to the general public. It seems to me that, by making motor insurance compulsory, the State has conferred a very real advantage on the motor insurance companies, and may therefore regard itself as entitled to say to them: "In return for this advantage of being taken in a sense into State partnership to your advantage, you shall regularly and systematically satisfy us not only as to your solvency, but as to the fact that you are faithfully, and on fair terms, discharging your obligations to the public, and further we ask you to provide these statistics which are required to enable us to conduct our general attack upon the much wider road problem."

I feel it in my bones that the noble and learned Viscount will say I am asking in this respect too much. If that is too much, will it also he too much to ask at a later stage for the mandatory "shall" instead of the permissive "may," and thereby transform the selective system with its necessary stigma, and all that springs from that necessary stigma, into the mandatory and automatic system? Only when we get that mandatory and automatic system will the public be in a position to feel that this compulsory legal insurance is, by all the companies and not merely by the great majority, being discharged in an adequate and reliable manner. That I believe is what the public demand and what it seems to me, subject to correction, unless it is strengthened this measure will not provide.

THE EARL OF MAR AND KELLIE

My Lords, surely at the present time every insurance company has to send up to the Board of Trade the most minute accounts? Therefore, if any unsoundness may occur, the Board of Trade is in a position at once to lay its finger on it, for that reason I cannot at first sight see the necessity for the Bill.

THE LORD CHANCELLOR

My Lords, in reply to the questions which have been raised by my noble friend Lord Elibank, I think he will realise that I anticipated most of the points he was going to raise in the speech with which I opened the debate. It is quite true that this Bill deals with companies, and companies only, but I explained before that it is not possible in legislation which it is desired to get on the Statute Book at the earliest possible moment to make such very complete changes in our law as would be involved by the suggestion to bring all individuals within the present company provisions.

The two questions which have been addressed to me by the two other noble Lords just a little bit cancel out one another. The noble Lord, Lord Elton, said: "Why do you not make it, mandatory and insist on everybody making full returns?" The next question was: "Why have the Bill at all, because you have already all the returns you want?" In fact, neither statement is quite true it is perfectly true, as I was going to say. in answer to Lord Elton in any case, there is already provision by which at the end of the year for which the accounts are made up, or, at any rate, within six months after they have been made up, figures are furnished to the Board of Trade, and these figures do contain very complete information; but my noble friend will realise that these figures relate to a period which may have begun eighteen months before the figures are actually furnished If the Board of Trade have to wait for eighteen months after they begin to suspect insolvency, and for such further period as is necessary to investigate the affairs of the company when the accounts are submitted, it may be a very long time before they are able to take effective action, and during the whole of that time a company which is not in a position to discharge its liabilities may be going on piling up increased liabilities to the on small detriment of the public.

In answer to my noble friend Lord Elton, who says "Make this mandatory," there is, as has been pointed out already, the mandatory provision that companies shall furnish accounts within six months after each year, and in the great majority of cases that is quite sufficient. This Bill is designed, as the 1933 Act was intended, to meet the case in which the Board of Trade believe that a company is carrying on business after it has got into an insolvent condition, and is not able to cheek that information or take any steps with regard to it because it has got to wait for six months after the end of the company's financial year. It would not be possible, as my noble friend has suggested, to make it mandatory on every company to furnish such accounts as the Board of Trade may want because, again, you would be leaving it entirely at the discretion of the Board of Trade to say what they are going to ask for. It is mandatory on every company to furnish such accounts as are commonly required. The need which we have found in practice to have arisen is to take steps when there is a company with regard to which there is general suspicion—and indeed what the man-in-the-street would call general knowledge—that it was in a doubtful state of solvency and with regard to which there is no means of arresting its course until the statutory period has arrived.

Then, it may be said: "Why should you not only have the right to demand such accounts as are involved in the ordinary statutory provision?" The answer is that it is not possible from those accounts always to find out everything that you want to know. In the ordinary case the accounts are ample and full and complete enough, and leave no possible doubt as to the solvency of the company involved, but one great element in a company's solvency is the assessment of the possible claims, because at the end of a year there is always an unexpired risk, and you can make a good deal of difference according to the rate at which you estimate the unexpected risk. I even read the other day an account of a company which was being wound up, and the explanation given by, I think, the managing director was that the Courts were so unreasonable in giving too heavy damages. That was only another way of saying the company had consistently underestimated its liability. Unless you have power to look into the figures and see how the accounts are made up you cannot check them and assure yourself of the solvency of the company. I do not contend that this Bill is complete. It is intended simply to meet the difficulty which has arisen in practice and which we hope will be remedied.

In answer to the other suggestion made by my noble friend, that we are eroding the edge of a great problem, I would point out that this Bill is not designed to affect the safety of the roads at all. It is intended only to deal with the ordinary but still important problem as to what shall happen when, unhappily, an accident has occurred. I venture to think that with these explanations your Lordships will realise that, although it is a small measure, it is yet an eminently useful one, and I hope, therefore, that it will receive your Lordships' general assent.

On Question, Bill read 2a, and committed to a Committee of the Whole House.