RESTRICTION OF ADVERTISEMENT (WAR RISKS INSURANCE) BILL. (Hansard, 21 November 1939)

§ LORD TEMPLEMORE

My Lords, this Bill is based on one recommendation, and one only, of the Committee which was set up under Lord Weir three months ago to examine the question of evolving any scheme for mutual protection against war damage to fixed property in private ownership. Your Lordships will remember that His Majesty's Government decided some time ago that, in view of the great changes in modern warfare, including intense bombing and things of that kind, since 1918, it was not practicable to set up any scheme of complete indemnity. This conclusion was announced by the President of the Board of Trade in 1937, and it was repeated by my right honourable friend the Chancellor of the Exchequer early this year. When the War Risks Insurance Bill was before Parliament in July last, a considerable amount of dissatisfaction was expressed by members of all Parties at the absence of any Government scheme of insurance to cover fixed property, plant and machinery. In consequence, a Committee was set up under the Chairmanship of my noble friend Lord Weir to consider this question and subjects connected therewith.

1862 I do not know whether your Lordships are aware, but it is a fact mat since 1937 various companies have started, on a basis of mutual enterprise, claiming to give subscribers protection against war risks to their property. These companies are not necessarily fraudulent—I do not mean to imply that—nor are they fraudently conducted. The great objection to them is, however, that they give the impression among people who are perhaps not very well versed in the subject of insurance—which, after all, is a complicated matter—that they afford full protection against war risks, whereas in reality the protection in many cases is very thin indeed. There are two main objections to the procedure of these companies. The first is that the rate of premium payable, judged by the standards of the advisers of His Majesty's Government, is really absurdly low; and secondly, that most circulars that come round are so overloaded with a mass of verbiage that many people are led to believe that effective cover is given, whereas the cover provided is conditional and may in the end prove severely limited or perhaps non-existent.

As regards the first objection, your Lordships are aware that when the war risks insurance scheme was drawn up, His Majesty's Government placed the rate of premiums as high as six per cent. They did that on the information provided to them by their advisers—which, after all, was the best information that they could get, and the best information that can be got is naturally at the disposal of the Government. Some of these societies, however, in these schemes which I am describing, charge in peacetime as low a rate as 2s. per cent., which is about the rate of an ordinary fire insurance carried out with one of the well-known companies, which of course has many millions of pounds in reserve at its back. I think the highest was found to be 15s. per cent. Even now, in time of war, rates in the lowest instance have only been raised to an average of between 5s. and 7s. 6d. per cent.

As regards the second objection, His Majesty's Government feel that it is really not understood by many people that there is a limitation of liability. As your Lordships know, in the Government scheme there is limitation, which is the Government's ability to pay; but these companies set out to give something 1863 much better than what the public get for nothing from His Majesty's Government, and people do not always realise that the companies are subject to the same limitation. In practically every instance it is found in these circulars that there is only a promise to pay at the end of the war, and in every instance the amount to be paid bears no relation to the amount of damage suffered but is limited by the amount in the fund at the end of the war. This means that with the small premiums there is very little cover indeed. In fact, I think it is true to say that the circulars of these companies, in many cases, set out the advantages at the top in very big print, so that people think that everything is lovely, and in much smaller type the limitations, conditions and so forth, which many people, unless they are knowledgable or very industrious, do not take the trouble to read.

The Committee under Lord Weir considered this and cognate matters, and in paragraph 14 they recommended legislation. They recommended it very strongly in language which I should like to quote to your Lordships. After saying that they have considered the problem of the growth in recent months of these schemes, they go on to say: While we do not suggest that there is any intention to induce the public by misrepresentation to subscribe to these schemes, we are of the opinion that many of the appeals made to the public on behalf of the promoters are put in such a form as in fact to mislead the public into thinking that a substantial element of cover against the risk of damage is offered to them. They go on to say that they received very strong representations against these bodies from various quarters, and they recommend that action should be taken to deal with them. And they go on to say this: We recommend therefore that the appropriate Government Department should consider the most suitable method of curtailing the public activities of the sponsors of such schemes by prohibiting circularisation of the general public in the form of prospectuses or advertisement. On that recommendation, which is contained on page 12, in paragraph 14, of Command Paper 6116, this Bill was founded.

To go on to the Bill: Clause 1 accordingly imposes a prohibition on the distribution on and after such day as may be fixed by order of the Board of Trade of 1864 circulars containing any invitation to persons to insure property in the United Kingdom against war risks, or any information calculated to lead directly or indirectly to the recipient insuring his property against such risks. The clause also prohibits, on and after the same day, the causing or permitting any advertisement to appear containing such an invitation. There is a general exception where the distribution of the circular or the appearance of the advertisement has been permitted by the Board of Trade, subject to such conditions, if any, as the Board of Trade may have imposed in regard thereto. The object of Clause 1 (1) is to secure that the person proposing to subscribe to any of the schemes in question shall have a clear and unequivocal explanation of the scheme and of the manner of its working. Subsection (2) contains certain necessary savings with regard to activities undertaken for the purpose of the War Risks Insurance Act, 1939, and so forth.

Clause 2 enables the Board of Trade, besides imposing conditions with regard to the actual distribution or appearance of a circular or advertisement, to specify by order requirements with which the persons carrying on the business must comply. The requirements must be designed to secure that any representations made in the circulars or advertisements are complied with, including, if the Board of Trade think fit, certain important requirements which are set out on page 3 of the Bill in paragraphs (a) to (d) of subsection (1). These cover such matters as the separation of the fund for claims from the fund for expenses, the proportion of the premiums to be allocated to the payment of claims, the maintenance of the compensation fund, and the keeping, drawing up, auditing and publication of accounts. In the exercise of these important functions, it is laid down in Clause 3 that there shall be set up by the Board of Trade an Advisory Committee. No permission may be given by the Board of Trade except on a recommendation of the Committee, and all conditions laid down by the Committee must be carried out. The clause, however, provides that notwithstanding the recommendation of the Committee, the Board of Trade may refuse permission or may impose additional conditions or requirements. The essential ground on which permission is to be granted must be 1865 that, having regard to all relevant circumstances, and in particular to the nature and situation of the property, and the classes of persons whom it is proposed to invite to insure, the Committee are satisfied that the granting of permission would not be contrary to the public interest.

I do not think the remaining clauses of the Bill call for any special comment. Clause 4 deals with penalties, Clause 5 is machinery, Clause 6 interpretation and Clause 7 the Short Title. That is the Bill. His Majesty's Government consider that at present there is a distinct danger that insurance schemes such as I have described, without, as I said before, being in any way fraudulent, do convey a wrong impression to many people, which may lead to great loss and disappointment later on, and that some remedy is needed in the interests of the public. They consider that the Bill will provide this protection for those people who need it, and I commend it to your Lordships for Second Reading.