INSURANCE COMPANIES BILL [H.L.]

HL Deb 08 February 1973 vol 338 cc1155-202

3.57 p.m.

THE PARLIAMENTARY UNDERSECRETARY OF STATE, DEPARTMENT OF TRADE AND INDUSTRY (THE EARL OF LIMERICK)

My Lords, I beg to move that this Bill be now read a second time. I hope your Lordships will share my gratification that this Bill has been entrusted to your Lordships' House. It seems to me appropriate that it should be so, for there exists among our membership a very wide experience in many areas of the great insurance industry. We have the capacity to make a major contribution to the discussion of this important question, and I have no doubt that this is just what your Lordships will do.

The purpose of this Bill is to refine and supplement the Insurance Companies Acts 1958 to 1967. The 1958 Act was itself a consolidation of Acts passed between 1909 and 1946. It has fortunately been possible to spend a little more time on reviewing recent experience and developments in prospect before embarking on the preparation of this Bill than seems to have been the case with some of its predecessors. In particular there have been extensive consultations with insurers, with insurance brokers, with accountants, actuaries and lawyers and with consumer organisations, revealing a large measure of agreement with the conclusions we have reached. We intend to take further time to ensure that we get the consequential details right; wherever appropriate the Bill provides for these to be filled in by Statutory Instruments which will be drafted after further consultations. We shall not, however, be reaping the full benefit of the new provisions until the details have been filled in, and I shall see that we press on with this as soon as the Bill has been passed. I look forward at that stage to receiving the same co-operation and immensely helpful advice from the industry as we have been fortunate enough to receive in preparing the Bill.

Although accordingly the Bill does not go into the more esoteric detail, it is nevertheles of some complexity, and I shall not claim, in introducing it, to explain to your Lordships all the niceties of the changes which it would make in the two existing Acts. I shall try rather to bring out the general principles upon which it is founded. I hope that I may be given the time I shall need to do justice to this. Your Lordships may wonder why such complexity is necessary: what is so special about insurance business that it should need so much more surveillance than business of other kind. This is in fact an area in which we have had legislation providing a form of consumer protection for more than a century. I will put the reasons as briefly as possible. People and companies seek the protection of insurance against risks that could cripple them financially, possibly with serious repercussions upon their families and their employees. In the case of long-term insurances the object is rather different; it is to save, in order to provide for old age or for the needs of dependants. But in each case, when the policy holder puts down his money he has to put his trust in the integrity and competence of the insurer: if this trust is misplaced his own prudence in insuring is to no avail.

The form and extent of supervision designed to reduce the risk of insurance failures has changed through the years, but a modified form of the caveat emptor doctrine has been the guiding principle throughout. This has usually been referred to as "freedom with publicity", meaning that the insurer normally has more or less complete freedom to run his business as he thinks fit, but must make available certain prescribed information to help the policy holder take a view as to his likely ability to pay up if and when the occasion for indemnity arises.

We do not share the view which prevails in some other countries that it is necessary for the Government to regulate premium rates, policy conditions and the choice of investments. We are content, as a general rule, to leave these areas to the free play of competition with all its advantages to our industry, to the consumer and to the economic interest of the country. But there are circumstances in which the Government must be in a position to react quickly and appropriately in order to protect the interests of policy holders, interests which may extend many years into the future.

I say "the Government" advisedly. We have carefully considered the arguments which have been advanced in various quarters for hiving off this responsibility to some specialised independent agency or to the industry itself. I do not believe that either House of Parliament would willingly see Ministers divest themselves of accountability for the protection of the public in this area. Yet, if they did not do so, no specialised agency could be truly independent and there would inevitably be duplication of effort. Provided that adequate resources are made available—and we have already advised our intentions in that respect—there is no reason to suppose that a Government Department is inherently less capable of effective supervision than some other form of organisation, and indeed the experience of the present supervisors in this highly specialised field is widely recognised. It is public knowledge that the British Insurance Association have, at the request of the Secretary of State, given great thought to the practicability of their undertaking a measure of supervision of their own members. They have concluded that this would be inconsistent with their status as a voluntary trade association and the Secretary of State felt bound to accept this view.

Until 1967 the Board of Trade's function was limited to prescribing the information to be made public and to securing the winding up of any company which could be shown to have become technically insolvent. That function was extended in an important way in 1967 when the Board of Trade were given powers in specified circumstances to require an insurance company to take various kinds of action with a view to averting a risk of insolvency. The present Bill is largely concerned with refining and complementing those powers of intervention in the light of subsequent experience in administering them. Clauses 11 to 16 and 20 do this by reformulating and extending the powers given by Sections 65, 68 and 80 of the 1967 Act. The somewhat artificial distinction between a newly authorised company and an established one is removed, and the Secretary of State may invoke whatever action may appear most appropriate in the circumstances of the particular company for protecting policy holders against the risk of insolvency. In the case of long-term insurance, where policy holders may reasonably expect substantially more than their contractual rights (as in the case of "with profit" policies), it is those reasonable expectations which are to be the criterion.

These powers give a wide discretion to the Secretary of State to react speedily and flexibly to a threat of insolvency while there is still a hope of averting it by appropriate corrective action. In other words, to maintain the company in a state to continue to meet the present and future claims of policy holders. This consideration is paramount. The discretion needs to be wide because it is impossible to foresee all the circumstances in which an insurance business might run into trouble, and whether the more obvious safeguards and remedies will be adequate to meet such cases.

The 1967 Act gave the Department another important new power; namely, to require information to be included in the annual returns of insurance companies of a different kind from that given in conventional accounts. This power was used in Regulations made in 1968 to lay the foundation for a new method of testing the adequacy of the provisions made for outstanding and future claims—a major element in the determination of an insurer's solvency and one of the most difficult to assess. There is already reason to believe that methods devised by the Department to use this information—the new returns are available for only two years so far—will enable them to make more confident judgments of the trend of a company's affairs and the adequacy of the provision it has made for liabilities not yet quantifiable with certainty. Thus, although these predictive judgments can never be infallibly right, the Department are now becoming better equipped to make use of powers of a more discriminating kind than those provided in 1967.

In order yet further to improve the information upon which we can base our judgment of the need for intervention, Clause 6 enables the Secretary of State to require returns from all companies more frequently than annually (quarterly is what we have in mind) Clause 7 enables him to require notification of prescribed kinds of transactions; Clause 17 enables him to require a company carrying on long-term business to make actuarial investigation within the three-year maximum interval; Clause 18 permits a shortening of the normal six-month interval for making annual returns and Clause 19 improves the powers to require other information ad hoc from individual companies by means of special inquiries. This last investigatory power will now be generally exercisable so that—and this is an important point—the stigma and presumption of trouble currently attaching to an "inspection" will be removed.

I believe that, however good a system of "paper" returns may be as a monitoring device, it is not a complete substitute for inspection on the ground. In particular, I believe that the study of methods used by the best companies will give us a valuable guide to our assessment of those who may not be so strong. Our aim is not the proliferation of form-filling, but to raise the management control of the less good companies to the standard of the best. This will of course make demands on skilled manpower and we shall have to consider carefully how to deploy it to the best advantage to cater for requirements for special skills. We have taken power in Clause 19(2) to employ outside specialists to help us.

The minimum financial standards required of insurance companies are affected by the Bill in three ways, in each case by enabling the Secretary of State to vary existing requirements, or to impose new ones, by Statutory Instrument. These powers will permit increases, first in the minimum share capital required before a company may be authorised to carry on any class of insurance business and, secondly, in the solvency margin which a company carrying on general insurance—that is to say, non-life insurance—must maintain. Thirdly, the powers will also permit specified categories of assets to be ignored and others to be discounted in calculating solvency. Rules for the estimation of liabilities may also be laid down. This will be particularly important in the case of long-term business and I shall presently refer to it further. Clauses 1, 27 and 31 deal with these powers.

It may surprise your Lordships that it should be thought necessary to provide specially for the better protection of holders of life insurance and endowment policies and annuities, to which the Acts refer as long-term business. It is many years since a long-term insurance business has failed and we fervently hope that this happy state will long prevail. But prominent members of the industry have publicly expressed some misgivings that the large, virtually permanent funds which accumulate in the course of carrying on this type of business may attract the attention of persons anxious to apply them in pursuance of other of their activities, activities which might not give the necessary degree of security for the interests of the long-term policy holders. Those other activities could include general insurance business, such as motor insurance in which underwriting has been markedly unprofitable in recent years for many companies. But we must also have regard to the tendency, observed in the United States, for the funds of long-term insurance to be used as a springboard for the creation of so-called conglomerates; empires of diverse industrial and commercial enterprises under the same ownership.

If a crisis occurred, it could be on a grand scale. In this country the total assets of life insurers are of the order of £15,000 million, representing the savings of many millions of policy holders. The Bill provides safeguards for the preservation of these vast sums in a number of ways. First, Clause 8 requires the assets and liabilities of a long-term insurance business to be distinguishable at all times from those of any other business carried on. Clause 9 restricts the application of the assets representing the long-term funds to the proper purposes of the long-term business and defines the circumstances in which withdrawals from those funds may be made after an actuarial investigation. Second, in valuing both the assets and the liabilities in the course of such an investigation, the actuary will be required to observe certain minimum standards to be prescribed by regulations under Clause 31.

As regards the assets, we shall give special consideration inter alia to investments in associated companies. These are not necessarily undesirable, but we shall probably put a limit on the extent to which they may be admitted as cover for the liabilities of the long-term business. As regards long-term liabilities, the valuation regulations will also have the effect of preventing credit being taken prematurely for the bonus loadings in the future premiums payable by with-profit policy holders. Thirdly, once a surplus has been shown, in accordance with these standards, to exist, the company will be required to give advance notice if it intends to distribute that surplus in a manner significantly less favourable to the policy holders and more favourable to the shareholders than has been its custom. Clause 4 clarifies certain aspects of the existing provisions relating to actuarial investigations and requires that the person to be responsible for them be named to the Department.

We hope that these provisions will ensure that long-term insurance business will continue to be properly conducted so that, as a result, not only will the sums assured under policies be forthcoming when due, but also policy holders entitled to participate in profits will continue to receive the bonuses arising from proper investment of their premiums. Should a company carrying on long-term business nevertheless come before the court for winding up, the liquidator will be required under Clause 30 to continue that business separately from any other business carried on, until such time as it can be seen whether the long-term business as such is viable. If it is—and it is rarely likely to be beyond salvaging to the advantage of the policy holders—it will be for the liquidator, subject to the approval of the court and with such independent actuarial assistance as he may need, to negotiate a transfer of the longterm business to new owners.

In the extreme case where this is not the most reasonable course to adopt, the long-term policy holders' claims upon the separate funds of the long-term business will be equitably determined in accordance with new winding up rules to be made under Clauses 28 and 29. There are already provisions governing the amalgamation or transfer of long-term business and certain defects in these are rectified in Clauses 25 and 26.

Because these quite complicated provisions are necessitated in part by the freedom of authorised insurance companies to carry on general insurance business concurrently with long-term, power is taken in Clause 3 to refuse in future to entertain applications for authorisation which would result in new composite companies being created.

I turn to the important provisions which are concerned with securing, so far as possible, that the control and management of insurance companies do not fall into the hands of unsuitable persons. It is an essential feature of insurance business that payment is made in advance to secure indemnification for losses or liabilities which may arise during a given period, and in many cases the amount of the loss of liability cannot be determined for some considerable time after the occasion for it has arisen. Thus, the insurer holds very substantial sums in trust for those of his policy holders who have occasion to make claims. Moreover he will normally be using the current cash flow of new premiums to meet claims as they fall due for payment, especially if the premium income is expanding. Thus, there is a wide possibility for fraudulent or incompetent handling of large sums at the expense of the insuring public. Potential beneficiaries include not only the policy holders themselves but also innocent third parties, such as the victims of road accidents.

The extreme case is, of course, that of life insurance, to which I have referred, where temptingly large funds build up. The policy holder, committed as he is to a long-term contract, is particularly vulnerable during the greater part of his life to unforeseeable changes in management or ownership. The present position is that the Department is bound to refuse an application for authorisation to carry on a class of insurance business if it appears to the Secretary of State that an officer, or a major shareholder of the company, is not a fit and proper person. The relevant section, Section 64 of the 1967 Act, does not define fitness, and we are not required to give reasons for rejecting an application.

Currently the situation is rather different either when a new person moves into one of the relevant positions—for example, when the company is taken over by new owners—or when information comes to our notice which throws doubt on the continued fitness of a person already in such a position. In these circumstances we now have to follow the rather cumbersome procedure laid down in Section 68 of the 1967 Act—that is, to put it rather badly, we have to threaten to put a stop on the acceptance of further premiums unless the person whose fitness is in question is removed or unless the Department can be convinced that their doubts are groundless. They must allow the company a month in which to make representations before imposing such a restriction and they must give particulars of their reasons for thinking the person unsuitable.

All this is prima facie very reasonable and desirable, since the freedom of the individual concerned to pursue his chosen line of commercial activity is at stake. Indeed, when the provision was introduced in 1967 there were misgivings on the part of some noble Lords that there was no provision for appeal to an independent authority, either in these circumstances or where an application for initial authorisation was rejected. I have to explain, however, that in practice even the constraints upon us which I have described have been found to make it difficult or even impossible to give the public the degree of protection which they may reasonably expect.

There is no problem about the man who was convicted of company fraud a couple of years previously, but this is not the typical case with which we have to deal. There may perhaps be a conviction of a dubiously relevant nature, or one many years ago, which makes the judgment a little more difficult. But the really difficult case is where the man's previous activities have left such doubts as to either his competence or his honesty as would lead any prospective employer to eliminate him from his short list of candidates but which would be extremely difficult to substantiate to the satisfaction of any judicial tribunal. Moreover, such information may reach us from sources well placed to judge and to advise, but which are willing to assist us in this way only on the assurance that the source will not be revealed. Often the nature of the information is such that its disclosure would almost certainly permit identification of the source and the consequence would be the loss of that assistance in the future.

Clauses 2, 21, 22 and 32 of the Bill seek to remove the Department's genuine difficulties in exercising their protective function, while improving the opportunity for persons whose fitness may be called in question to convince us that we are mistaken in our view. Clause 32 makes a change of control of a company dependent on our first being satisfied as to the fitness of the persons concerned. Clause 11 permits the imposition of precautionary requirements in such a case until such time as the actual performance of persons to whom there is no evident objection can he assessed.

I recognise that there may be those who think that these powers to control entry to the business are harsh and potentially unfair to the individual. To them I would say three things. First, it would be expensive folly to build up an expanded apparatus of supervision and control of initial entry but leave it open to penetration by the imprudent or the fraudulent operator. Second. I believe that we are seeking to do no more than any of your Lordships would do privately if you were looking, for colleagues in a business of this kind and if your own money were at risk. Third, I believe that most people would agree that we are right to require exceptionally high—and I use this phrase deliberately—standards of morality and competence from those who seek to control the destinies of an industry so uniquely important to the consumer.

There is a counter-weight to the important discretionary powers for the Department to restrain undesirable conduct to be found in Clause 36. This gives powers to modify normal requirements, subject to appropriate safeguards, so as to give relief to a company in whose particular circumstances the full rigour of those requirements would be unduly onerous. This is a consolidation and refinement of a number of existing powers and is extended to include the new requirements provided for in Clauses 4 to 10. Finally, it is proposed in Clause 38 to take power to make regulations as to the form and content of insurance advertisements in place of the rather inadequate requirements in Section 25 of the 1958 Act, and in Clause 39 to require disclosure of connections between an insurance broker and an insurer. Clause 41 removes a doubt as to the validity of certain group policies.

My Lords, in this brief summary of the principal clauses of the Bill, I have tried to avoid wearying your Lordships' House with overmuch detail. If it still appears to be a somewhat complex Bill I think that may be attributed to two main causes: first, that the subject matter is inherently complex; and second, that the structure of the Bill is complicated by the fact that we already have two Acts—the Insurance Companies Act 1958 and, superimposed upon it, Part II of the Companies Act 1967. We are adding a third, but a good deal of this will replace or modify parts of the two earlier layers rather than introduce new principles. In short, it raises, or permits to be raised, the existing minimum financial standards; it intensifies the closeness of monitoring by the Department and it gives them more flexible powers to intervene if the need should arise.

The detailed conduct of insurance business will still be left normally to the enterprise and good sense of competent managements, thus preserving the benefits to the consumer of innovation and fair competition. Moreover, this is achieved with a relatively modest expenditure of resources on supervision, as compared with the more extensive control which some other countries have imposed. Although we have almost certainly tried to supervise insurance too cheaply in the past, there is a point at which the returns for increased expenditure must diminish sharply. I think that with the refinements provided by the Bill and the increased resources to which the Explanatory Memorandum refers, we shall achieve a reasonable balance. I would certainly not be so rash as to claim that this Bill, or any conceivable Bill, or any conceivable increase in supervisory staff, will prevent there ever being another insurance failure. It is, however, only fair that the Department should have all the powers and resources it reasonably needs to give the public a reasonable degree of protection; there is no doubt that this is what the public expect and are prepared to pay for.

I commend this Bill for consideration by your Lordships' House as a useful and necessary measure of consumer protection, drafted with regard to the continuing health and vigour of one of our major industries. I shall do my best to clarify at the end of this debate any aspect of it to which noble Lords may wish to give special attention.

Moved, That the Bill be now read 2ª.—(The Earl of Limerick.)

4.26 p.m.

LORD DIAMOND

My Lords, I am sure that all your Lordships will wish me first of all to thank the noble Earl for the full and careful explanation he has given to the House of the general effect and some of the details of this particular Bill. I assure him straight away that we share the gratification to which he referred at the start of his speech, that we in this House are dealing with this Bill first, for the very reasons that he gave. It is obvious, therefore, that from this side of the House we are not going to seek to divide the House against the Second Reading of this Bill, both in the circumstances to which he and I have referred and having regard to the nature of the Bill. I want, however, to do two things in a speech which I am afraid is bound to take a little time, but I hope not to try your Lordships overlong. First, I want to pursue the assumption that this Bill will pass your Lordships' House and therefore to indicate the kind of matters with which we shall seek to deal on the Committee stage. Then I should like to invite your Lordships to look at the general approach of the Government to this very important issue of insurance and to consider whether it is the only or the best approach.

First of all, then, may I deal with the matters which we shall broadly seek to improve at the Committee stage. We shall seek to increase the protection of the short-term policy holder in a number of ways: first, with regard to cover. I have in mind that there are many policy holders who find that most of the terms of a policy in small print—although I am not making the slightest suggestion that they are put in as small print—leave them lacking in the kind of cover for which they thought they were insuring. It may be possible, therefore, to have standard forms of cover for various categories of insurance. We believe also that we might further protect the short-term policy holder on the question of the invalidation of his policy through what I might call the involuntary non-disclosure on a proposal form. I understand that cases have arisen where a proposal form has not asked a relevant question; the answer has not been given; but having regard to the nature of an insurance policy, which we all understand, the policy has been held to be invalid.

We want also to probe the possibility of protecting the short-term policy holder further by closer control and regulation of agents. I do not refer only to brokers but to anybody who is receiving an agency commission—garage employees who it is alleged have gone to unnecessary lengths to secure commission for themselves by offering advice of an undesirable kind to prospective policy holders, especially with regard to the completion of their proposal forms, and which has again resulted in a claim's not being met when it has arisen. That is so far as the short-term policy holder is concerned. Then we would seek to protect the long-term policy holder more by strengthening the control of the surplus which is allocated to the policy holder and by strengthening the control of the proportion of overhead expenses which is charged to life business. We would seek to strengthen the prevention of fraud by further provisions in relation to the identification of assets, a matter which is referred to in the Bill, and by strengthening provisions against investment in or loans to associated companies. All these are matters which I hope my noble friend Lord Jacques will develop more fully when he comes to speak later on in the debate.

Then we would seek to protect the individual against injustice through the possibly arbitrary decisions of a Secretary of State. The noble Earl referred to this matter with some obvious hesitation, some very proper hesitation, if I may say so; it is a very difficult issue indeed, and we should therefore want to discuss it more fully on Committee. Obviously, what I am getting at is that we must avoid the attitude of "Now you are in, now you are out", and of a person's not knowing why all this has happened. The protection of the individual in carrying on his business as he thinks fit within the law of the land is an important protection. I hope my noble and learned friend Lord Stow Hill will develop this matter when he speaks later on.

Further we would, during the Committee stage, seek to protect the well-run company against the stigma of investigation, to which the noble Earl again referred. It is a very difficult issue. Investigation is to see that adequate in- formation is given, and may be for no bad reason, but it is very difficult to persuade people that it is for a good reason and not for a bad reason. That being so, one has to take great care that the stigma which might otherwise attach to an investigation—and one must assume that information about investigations always gets out—shall not do so. These I are Committee matters, but they are important. They are matters we shall seek to raise at Committee stage, together with any others which any of your Lordships or my noble friends think of, and which we think would strengthen the Bill, always making the assumption that this is the right approach for the problems of insurance as they have been shown to exist.

What I now want to do is to stand well back from the Bill and to look at the policy which the Government are adopting, and to ask whether it is the right policy and whether it is the only one. And to assist your Lordships in coming to a conclusion on that I think I must trouble your Lordships with the history of insurance legislation. It was referred to by the noble Earl, and nothing I am going to say is in contradiction of what he said, but I should like to deal with it a little more fully. May I first remind your Lordships that in the 1860s we experienced the failure of two large insurance companies, and as a result Parliament passed the Life Assurance Act 1870. This was followed by the failure of several small insurance companies in the 1920s and the Report of the Clauson Committee, as a result of which further powers were given to the Board of Trade in 1933 and again in 1935.

The failure of the Fire, Auto and Marine Company and a number of other motor insurance companies followed in the 1960s, as a result of which Part IV of the Companies Act 1967 very substantially strengthened the powers of the Board of Trade. But, despite the 1967 Act, there occurred the Vehicle and General failure in February, 1971; and the present Bill, as the noble Earl explained is being introduced largely as a consequence of the Vehicle and General failure.

So we have had a series of rearguard actions taken by the Governments of the time, after some horses have fled, closing certain stable doors, protecting the policy holder against further failures. And one is bound to ask (the noble Earl himself referred to it, but did not ask the question) when the next failure might take place. The noble Earl hoped there would not be one. I echo that hope. I am only recounting the history. I dare say—I have not looked up the debates—that on each occasion a Minister expressed himself as reasonably satisfied and very hopeful that no further failure would take place. He would be entitled to do so on the basis of the knowledge he had at the time. I am only saying this is the history of the case as I understand it.

We have had, as a result of these various pieces of legislation, restriction piled upon restriction, and in the present Bill again we have some restrictions varied but a large number of new restrictions introduced. So I think we can properly say that we have now reached a stage when the industry is attempting to function in a straitjacket. The restrictions, both old and new, are many and powerful. There are restrictions on starting an insurance business; there are restrictions on running the business; there are restrictions on stopping running the business; there are restrictions on the kind of insurance business to be undertaken; there are restrictions on the kind of investments; there are restrictions on the methods of valuing those investments; there are restrictions on individuals responsible for running the business; there are restrictions on advertisements. I am giving but a short selection of the restrictions imposed by what will be the three current Acts of Parliament, all seeking to protect the policy holder by the process of adding restriction to restriction, leading to a situation where the scope for private enterprise and competition has been reduced to minimal ebb.

Now, my Lords, what is the insurance of which we are talking? It is a vitally important service, vitally important to the policy holder, both as a means of saving, as the noble Earl said, and as a means of spreading among his fellow countrymen, or wider than that, the risks which are inherent in life. It is of growing importance. One has only to look at the total figures of premiums collected to appreciate this fact. And it is of vital importance also to the State in terms of saving—a most important element in the financial management of our economy, and of any country's economy. It is because of this that the State has for many years encouraged life assurance as a form of saving. The result of that has been, as your Lordships are well aware, that almost every year we have had to design methods in the Finance Acts of closing loopholes which have been created by those desirous of transferring the tax savings to which I have just referred to a different purpose. That has continued year after year.

In the present system there are, of course, areas of considerable waste. One has only to compare the proportion of the administrative cost of management with the premium income of various types of insurance to see how forceful this argument is. If we look at National Insurance we see that the proportion is 5.7 per cent.; in the Industrial Injuries Board the proportion is 12½ per cent. Moving now to the companies which are restricted, and are now to be further restricted, we see that so far as motor insurance is concerned the proportion is 31 per cent.; so far as industrial life is concerned, 34 per cent.; and so far as accident insurance is concerned, 38 per cent. In the case of fire insurance, nearly 40 per cent. of the premium the policy holder pays goes in arranging the cover which he is seeking, and only 60 per cent. is left for meeting the risks against which the policy holder seeks to be insured.

Would your Lordships think of the enormous waste which arises in settling motor car claims throughout the country? Actions are going on all over the place all the time. They could all be avoided simply by adopting some method whereby, just as a man who is injured in an accident finds his way into hospital, which is there provided for him, so any damage that he suffers is compensated without all the argument as to whether he is entitled to it. It does not take much to see whether a person has been blinded in both eyes, or whatever it may be; but actions go on year after year—four, five or six years—before being settled. The thalidomide history is not the only history of those who have suffered damage and who have been unable to secure one penny in the normal processes of securing cover, securing repayment from an insurance company. That waste, which must be enormous, could be easily avoided.

THE EARL OF LIMERICK

My Lords, may I interrupt the noble Lord? I am not quite clear as to his point here. What he is suggesting is the connection between the thalidomide case and delayed payment of claims by insurance companies?

LORD DIAMOND

My Lords, what I am suggesting is that in the method adopted at the present time, which the Bill perpetuates, there is enormous waste in human activity, and delay in time, before those who are injured can get compensation for their clearly established injury on a variety of grounds of law and the calculation of the compensation. All that could be swept aside under a different system, as I shall disclose. That is the point I am making. I am grateful to the noble Earl for asking about it, because I apparently had not made it clear.

A great deal of work has been done on the subject, as the noble Earl knows, and I think that this is an opportunity for considering that as one element in the question which I am putting to your Lordships' House; that is, whether this is the best and the only philosophy to adopt in dealing with the problems of insurance. The waste again is in the Minister's own Department. I am not saying that any civil servant is not going to be fully occupied in doing what he has been called on to do—of course he will be. But what I am saying is that, according to the Explanatory Memorandum, the Bill will call for, not a total new force but a total force of 100 civil servants to supervise the insurance industry.

Having covered the background, I can now describe what I think is a fair analysis of the Government's attitude. It is to stick to the old cycle of failure followed by restriction, followed by further failure followed by more restriction, until the competitive private enterprise is so restricted as to be incapable of carrying out its traditional function. I would not call that approach to our problems an imaginative one; it is an extremely pedestrian one. If I were to be asked why then has the insurance industry signified its general acceptance of these provisions —as I understand it has—I would say, "Well, that is exactly what one would expect" One would expect the existing, well-established companies to say, "Pull up the ladder, Jack; I'm all right." It would not be the first time that that kind of approach had illumined the activities of bodies well established.

I should prefer to see something different. I should prefer to see consideration given to the question of whether, for certain forms of insurance such as life assurance, accident insurance, ills which befall every one of us, we ought not to recognise that competitive private enterprise is no longer appropriate. We ought to consider whether the community should not organise this national service on a national basis. It would clearly lead to an enormous saving in administrative expenses; and most of the problems with which we are battling in this Bill, and in the earlier Bills, would no longer arise. The protection of the policy holder would be complete; his savings, which would need to be held and managed on a commercial basis by an entirely independent body, would be secure; failure and fraud would no longer arise; the policy holder would get more for his money.

To sum up, the Government have decided to travel the old road of ever-greater restriction. I should prefer to see the alternative route examined, of establishing a non-profit-making national service for those forms of insurance that are of very general application. But as we have this Bill before us, all we can do for the time being is to go along with its Second Reading and seek to improve it at the Committee stage.

4.50 p.m.

LORD CACCIA

My Lords, I must start by declaring an interest, as I am myself a director of an insurance company; namely, the Prudential Assurance Company. But, of course, I do not here speak for that company, or for the industry or for any of its associations. I speak purely in my own personal capacity, which is proper and fitting as a Member of your Lordships' House. Having said that, may I start by welcoming the Bill in general and also, as the noble Lord, Lord Diamond, has done, in the fact that it should start in this House.

As a background, I begin from the position that the insurance industry in this country has provided a great deal towards its prosperity, economically and socially, and it now has an increased chance to do so and to spread into Europe where our own pioneering work will give us every right to claim to be in the lead. So I would hope that the approach will be one of seeing how the strength and vigour of this industry can be promoted. In saying that, I would not in the smallest degree wish to set aside a debate of the kind that the noble Lord, Lord Diamond, has suggested; that is, about the alternative. But in my own judgment, having considered the matter—and this must be a personal opinion—I should have thought that, despite the failures to which the noble Lord has referred, the public interest is at present being promoted, and indeed has been in the past, by the system which has grown up in this country. But by all means let that be debated; it is a very proper subject for consideration. I think I know the answer, and I dare say the noble Lord is capable of being persuaded in argument at a later stage.

If my approach is adopted, then one is faced not—as I think the noble Lord was saying—with the position of the major companies in this country. They have not been subject to the failures to which he referred. What one is trying to protect the public against are companies who are not perhaps quite so well founded, that undertake risks which, in the interests of the policy holder, have proved to be improper and impossible to be sustained.

On that basis, there are two lines of approach. One is what has been the continental approach, and the other is what has been the approach in this country. The continental approach has been to try to protect the policy holder by laying down by Statute, by act of State, very precise regulations on the matters referred to by the noble Earl, Lord Limerick, such as premium rates, investment policy and so on. That is one route, but it is not the route that we have taken. As the noble Earl pointed out, our route, briefly summarised, has been freedom with publicity and a discretionary power in the hands of the Government to see that the policy holder is protected. To my mind, this Bill quite soundly takes the second course and, in my book, is welcome for that; and welcome not only in general but, also, in particular for the provisions to protect life policy holders, who I think are in a special category. Looking at the past and at the future, I should have thought that this is not only the correct way, but is the way to sustain and promote the vigour of this industry which, despite the failures, has up to now been a national advantage. The failures are admitted, but they are the fringe; they are not the substance of the business.

From that, the question arises of the responsibility of the Department of State, once the Board of Trade and now the Department of Trade and Industry. As the noble Earl made clear, under previous Acts the old Board of Trade, and then the Department of Trade and Industry, had responsibility in this area. It was not as if they had no responsibility, nor was the proposition ever put forward that the industry should be able to police itself. You have only to look and see how a competitive business is run to realise that in no circumstances is it conceivable that the industry should on its own, and without any interference at all from the State, be able to police itself and protect the policy holder. It can do a great deal but it cannot do it all, and the responsibility for that under Acts of Parliament over many years has been with the Department of Trade and Industry, or with the Board of Trade before it.

Latterly—and I think this was shown very clearly in the inquiry into the Vehicle and General—the problem has been that the Department had the responsibility, but not necessarily all the powers required and the machinery to do what was needed. This Bill should provide those powers and the machinery to do it, with one proviso to which the noble Earl referred. He said that there would be skilled manpower to carry out the provisions of this Bill. I cannot emphasise too strongly the importance of that element, for if the manpower that is to apply this Bill—assuming that it becomes an Act—is to he a help to the industry, it is essential that it should be skilled and experienced. Otherwise, those people could tie the industry up in so much red tape that we might find ourselves in the difficulties to which the noble Lord, Lord Diamond, referred, and which in general is not a risk of the industry at present.

One aspect to which both the noble Lord and the noble Earl referred, which at first blush makes me hiccough, is Clause 32, with the definition in Clause 2, giving powers to the Secretary of State not only to have reported the people who will be in control, whether on the higher management side or as directors of a company, but, after having given certain warning, to say, as an act of State and power, that such-and-such a person shall not be in a position of control, either on the management side or as a director. I know that such powers exist in legislation in other countries, and that this is a very difficult area, but there is an element of "Big Brother" here which makes me feel uncomfortable.

I realise that this subject has been looked at already, but I hope that it may be looked at yet once again when we come to the Committee stage, to see whether there should be some form of tribunal which could be set up, to which particular cases could be referred: this because under the Bill not only has the Secretary of State complete power to make a decision, but he is also to be excused from giving any reason at all for that decision. In the circumstances described by the noble Earl, I can see that this might be to the advantage of the policy holder, but one then runs into another principle which is of value. I refer to the principle of the liberty of the subject in this country to conduct business, if he so wishes, and not to be prevented unless there is some public process, some public tribunal, some place in which he can defend himself and see that there are valid reasons, accepted by the public, why he shall or shall not be allowed to proceed. But, as I said, I know that this is a difficult area.

I should like to conclude by saying that, apart from that proviso, I would in general welcome this Bill. I hope that it will proceed through this House and, with such Amendments as may be made, will reach the Statute Book as soon as possible. This not only for the health of the industry which it seeks to promote, but to add to the strength of this country at home, both economically and socially, and to give us a chance to spread overseas into Europe and elsewhere.

5.0 p.m.

LORD O'NEILL OF THE MAINE

My Lords, like the noble Lord who has just sat down, I must declare an interest in this matter to the extent that I am a director of the Phoenix Insurance Company; but, also like the noble Lord, I do not speak for any company, or indeed for the industry, but merely as a Member of this House. It may be that I shall cover some of the points made by the noble Lord who has just sat down, but others, I think, have not been mentioned in this debate so far. The far-reaching importance of this new Insurance Companies Bill does not rest solely upon what it seeks to achieve by vesting in the Department of Trade and Industry more flexible powers with which to discharge its responsibilities for the supervision of the solvency of insurance companies. The Bill's importance rests also upon the fact that it is concerned with an industry vital to the economy of this country, because of the major contribution it makes by way of overseas earnings in the invisible sector; an industry which, by virtue of the esteem in which it is held as the leading world insurance market, reflects great credit upon this country.

The flexibility, stemming from a comparative freedom from detailed Governmental regulation, which, unlike its competitors in many other countries, British insurance has traditionally enjoyed within our economy, has been an important factor in the achievement of this leading role. Against increasing world competition and, as has been mentioned already, on the eve of opportunities in Europe, it is imperative that this flexibility be maintained. Within the constraints imposed by the need to provide satisfactory protection for insurance policy holders, this precept has in the main been recognised in the proposed legislation before us, and the long-held tenet of freedom with publicity has been preserved. The new Bill has been welcomed, both by the public and by the insurance industry alike. The British Insurance Association has recorded its general support, and has described the Bill as an important advance in giving the Department of Trade and Industry more flexible powers to take effective action to prevent insolvencies of insurance". The Life Offices Association, too, has welcomed the Bill, noting with satisfaction that one of its main purposes is the amendment of the law so as to improve the security of life policy holders. Both associations have, however, reserved their positions by stating that they still have to carry out a study of the detailed provisions of the Bill.

During the preparation of the Bill—and of course the Minister knows this only too well—the insurance associations have assisted the Department of Trade and Industry by providing information and technical advice. It is to be hoped that this co-operation will continue over the framing of the regulations provided for in the Bill. I think I am right in saying that the Minister gave that assurance in his speech. The Bill gives the Secretary of State power to put into statutory form practices which have long been adopted by reputable insurance concerns and which are necessary for the protection of their policy holders. It also gives power to the Secretary of State to intervene and to exercise control in a way the insurance industry has for long thought to be necessary. In certain respects, however, it seems to me that the Bill provides powers which are very wide indeed and which may be without precedent in legislation affecting our commerce and industry. Parliament is careful about creating precedents, and is especially careful not to provide powers over individuals and organisations against which there is no appeal in the courts. Consideration should perhaps be given to these points in the later stages of the Bill—with this reservation, my Lords: I believe this to be a Bill which can be commended and one which, while strengthening the protection afforded to the insuring public, is at the same time in the best interests of a great industry and is accepted by it as such.

5.5 p.m.

LORD STOW HILL

My Lords, I hesitate to intervene in this debate because the aspect of the Bill to which wish to direct your Lordships' attention has already been dealt with, if I may say so, so adequately by the arguments of the noble Lord, Lord Caccia, which he introduced by saying that that aspect of it made him hiccough, and by the noble Lord, Lord O'Neill of the Maine. But possibly I might add a little to what they have said with regard to what I may compendiously describe as the "fit and proper person" provisions in the clauses of the Bill. I am not a director or a consultant of any insurance company, and I do not know whether the Rules of your Lordships' House require me to say that I have an interest in that, over very many years, I have had the most happy professional associations with insurance companies, which makes me well disposed in their favour. I do not know whether that is, in the terms of your Lordships' Rules, a declarable interest or not. However, there it is.

My Lords, may I pursue the arguments of those two noble Lords a little further by inviting your Lordships to consider a little more in detail the actual "fit and proper person" provisions? One starts with Clause 2. That clause defines what is described as the "controller" or "manager". A controller, broadly speaking, is a director or a chief executive; and may I, for the sake of brevity, use the terms "controller" and "manager"? As the noble Earl said, no company can start to carry on the business of insurance unless it receives an authorisation under Section 61 of the Companies Act 1967. Clause 2 of this Bill provides that the Secretary of State shall not grant an authorisation to a company to begin business if he considers that a controller or manager who is not a fit and proper person is to be associated with that company.

It is not as if we were, as the noble Earl pointed out, introducing a provision of this sort for the first time. It was introduced for the first time, I think, by Section 64 of the 1967 Act. Nor could I (I should have thought) suggest to your Lordships that there is no sort of precedent in other contexts for this kind of provision. When a Bencher of one of the Inns of Court wishes to propose a young man to be called to the Bar, lie has himself to certify in writing that in his opinion the young man is a fit and proper person to be called to the Bar. Earlier this week we were discussing, on Second Reading, the Solicitors (Amendment) Bill, and your Lordships may remember that in that Bill, equally, there is a provision that the governing body of that profession has to be of opinion that a new entrant into the profession is suitable, in terms of character and so on, to he a member of the profession. Private, domestic tribunals in which that sort of phrase is used of course abound. It is not, therefore, as if we are wholly strange to provisions, either in private, contractual arrangements relating to tribunals, clubs and so on, or in our legislation at any rate since 1967, to the effect that a person may be prohibited from undertaking a particular activity, or may be otherwise subjected to restrictions, if somebody, whether the committee of a club or, as in this case, an executive Minister, is of the opinion that he is not a fit and proper person.

If I may pause for a moment on Clause 2, if the Secretary of State is of that opinion in the case of any particular company, and accordingly feels that he is under an obligation to refuse an authorisation under Section 61 of the 1967 Act, then, as the noble Earl pointed out, he need give absolutely no reason. There is no requirement that he should say who the person is or on what grounds he thinks that the person concerned is "not a fit and proper person". There is simply a blank with regard to that. The company just does not get the authority.

Then one goes on to Clause 11(1)(e). Your Lordships will have noticed, I am sure, that it is Clauses 12 to 20 which provide most of the extremely drastic powers that are vested in the Secretary of State enabling him to interfere in the conduct of insurance companies. Clause 11 sets out the circumstances in which those powers can be exercised. As I have said, one of those grounds is contained in Clause 11(1)(e). That is the ground which relates to "a fit and proper person". Under that provision, the Secretary of State can exercise these drastic powers contained in Clauses 12 to 20 if he considers a person will be a controller or manager who is not a fit and proper person to be associated with the company". The requirements in that particular case are slightly different. If one goes on to look at Clauses 21 and 22, one finds that if the Secretary of State proposes to exercise any of those powers contained in Clauses 12 to 20, he has to serve certain notices.

The two clauses are somewhat complex and I shall not take up your Lordships' time by going into them in detail. But I think that I should be fairly summarising their effect if I said this. Supposing that under Clause 11(1)(e) he proposes to exercise the powers, and in particular the powers under Clause 12, on the ground that there is in his view a manager or controller who is not a fit and proper person in the company, he has to serve a notice on the controller or manager in question. If he wants to exercise his powers under any of the other provisions of Clause 11, he has to specify the grounds. The clauses say that he has to specify the grounds even if he wishes to use the "not fit and proper management" provision of Clause 11. But it goes on to say that in that case the only ground that he need specify is the identity of the manager or controller in question. In other words, he need give no sort of reason. All he says is, "You, 'X', are not a fit and proper person". But if "X" wants to know why, the Secretary of State is under no obligation by the express terms of Clauses 21 and 22 to give any such grounds.

I do not know whether or not the noble Earl, Lord Limerick, will pardon me if I venture to offer what I think is a slight correction to what he said with regard to Section 68 of the 1967 Act. He said that in that case grounds had to be given. I understood him to be implying that the grounds in that case would include grounds for saying that a person was not a fit and proper person. If he looks at it again, I think he will find that he is mistaken. But perhaps I read it wrongly and he is correct.

That is the position under Clauses 21 and 22. Then the noble Earl referred to Clause 32. Clause 32 deals with the situation in which somebody is proposing to become a controller or manager. The Secretary of State can file a notice of objection. Again, he need give no reasons for saying why that person is not, in his view, fit and proper; all he has to do is to serve a notice on that person saying, "I object to you". In order to complete the picture, my Lords, I ought to make this addition. When the Secretary of State serves a notice under Clauses 21, 22 or 32, he must serve a notice on the controller or manager in question telling him that he has the right to make written representations to the Secretary of State or to make oral representations to an officer in his Department. I ask myself what is the position of the supposedly unfit person when he receives that notice. He can write a letter to the Secretary of State saying, "Dear Mr. Secretary, you say that I am not a fit and proper person. I have not the remotest idea of why you should think so. But I think that I am a highly fit and proper person." He can do that. He has the further consolation that those clauses provide that when the Secretary of State receives a representation of that sort he must take it into account. What on earth the unfortunate man—if he is unfortunate; he may be an out-and-out rascal, but he may not—is to put in the letter I do not know.

What is his position to be when he goes before an officer and says, "I wish to make an oral representation" He will sec an extremely polite and well-informed civil servant sitting on the opposite side of the table. He will no doubt be invited to sit down and say what he wants to say. He will then ask the civil servant—perhaps it is natural for him to do so—"What have you against me?" He will be met with a stony silence. It is not really giving him much of a safeguard to put him in that position. Therefore in that situation, these drastic powers arise; he can be prevented from becoming a controller, a director, a chief executive or a manager of a company, and he is given no more information that that.

A very odd contrast appears when one looks at Clause 25. As the noble Earl reminded us, it deals with the case where an insurance company is to be transferred, wholly or in part, to a transferee company. The court will be required to sanction the transfer; but one is told in Clause 25 that the court is not to sanction the transfer if, inter alia, the transferee company is not a company which will obtain authority under Section 61 of the 1967 Act to carry on business. In other words, again, if there is associated with the transferee company a not "fit and proper" person, the not "fit and proper" person is given no right to he heard before the court. In contrast, any employee who can say that he will be adversely affected by the transfer is given by Clause 25 an express right to be heard by the court. It is a very unequal situation for these two people. I sympathise with the desire to keep scallywags out of this great industry, but a person may be dubbed a scallywag when he is not.

If one is trying to make up one's mind whether a young man is a fit and proper person to be called to the Bar, one is undertaking probably a very much easier judgment than one might be undertaking in nine out of ten cases when seeking to assess the behaviour and conduct over ten, twenty or thirty years of somebody associated with an insurance company. I do not know what I would think the words "fit and proper person" mean. In general, I suppose, if the Secretary of State thinks, to put the matter loosely, that the individual is of a shady financial character, he will be justified in saying that he does not think him a fit and proper person. But what else ought he to take into account? Let us suppose that he thinks the man completely incompetent. Does that make him an unlit person? I think it is arguable that it does. But it is hard lines on the individual who may entirely dispute that he is unfit or incompetent. How far does it go? Is the Secretary of State to take into account sexual morals? If a man has been vicious and cruel to his wife, is that relevant? My Lords, one's mind boggles at the idea of what is to be taken into account.

Then it may be said, "Ah, but the Secretary of State is, after all, under our Constitution, responsible to Parliament. When he goes to either of the two Houses lie may find a Question down to him, asking why he exercised his responsibiity in a particlular case in a given way". But when the Statute says in terms that he is under no obligation to give any reason, I should have thought it was difficult to get much out of him by questions. If the questioner says, "Why did you exercise your power under Clause 12 in relation to Mr. X? What have you against him?", I suppose that the right answer would be, "It is expressly enacted that I am not bound to give any reasons, and I cannot think that it would be in the public interest to go against the expressed will of Parliament". So, my Lords, the Secretary of State is impregnable in his place at the Box.

I do not know whether difficulties might arise in the future if there were a really persistent Mr. X who was thoroughly aggrieved at what he thought was a completely unjust decision in his case and who said, "I will harass the Secretary of State. I will issue a writ for libel against him for saying that he thinks I am an unfit person The Secretary of State would have qualified privilege. He would be entitled to say, "I have not committed a tort against you because I did not act maliciously". If I were Mr. X and felt strongly about it I might be tempted to put in my reply, "There is plenty of evidence that you acted maliciously, otherwise you could not have come to such an utterly ridiculous conclusion in my case, without having the smallest ground to support the opinion that you have expressed that I am unfit and an improper person". I do not know what documents or what material the Secretary of State would have then, in the course of the proceedings, to furnish to the court in order to defend himself against a claim of that sort. When they get vicious, people can go a long way, and vexatious litigants are very difficult to handle. I can foresee that if someone thought that he was really the victim of a serious injustice he might go a long way and make the position of the Secretary of State very uncomfortable indeed.

My Lords, my noble friend Lord Diamond said that we wished to test this matter in Committee and I hope that your Lordships may think that that is a right course to take. Whether the two noble Lords who spoke last are right in suggesting that there may be some right of appeal, some sort of tribunal, I do not know, but I hope that your Lordships will think that I have not taken up the time of the House unnecessarily. After all, we are a legislative Chamber and we all want to keep rascals out of this great industry. But also we are under a duty not to pass what we have not considered, and not to be oppressive even in our dealings with scallywags. I hope that your Lordships will think that this discussion has been of some value and that it would be appropriate to return to this matter during the Commit tee stage.

5.24 p.m.

LORD SELSDON

My Lords, I feel that in speaking to-day I should declare a rather indirect interest, in that I work for a financial services group which, among its interests, owns two British insurance companies. Like the noble Lord, Lord Caccia, I would point out that I am in no way speaking on behalf of the company but rather as a Member of your Lordships' House whose commercial interests occasionally have touched on the insurance field. I think it must be a comparatively rare occasion when Government interference in the commercial world is welcomed by companies, by the Press and by the general public. This is certainly the case with this Bill, for inquiries that I and others have made throughout the industry have shown that on all sides people are unanimous in their belief that some further form of Government control is necessary if certain disasters in the past are not to be repeated. It might not be out of place for me to suggest that if there were closer co-operation between Government, industry and commerce on all fronts at this stage, many of the problems might be overcome.

I have no hesitation at all in supporting my noble friend Lord Limerick, but I should like to take a few brief moments of your Lordships' time to touch first on the general concept and the need for a Bill; secondly, to make a few points on its implementation; and, thirdly, to refer to one or two international aspects. The insurance world is, and has been for decades as we know, an integral part of the economy of this country and, equally important, an integral part of our social life. The whole essential psychology of insurance is that it provides security; security for the man who drives a car, for the pedestrian, the wife, the family and the employer or employee. This sense of security has been built up by years of work and reliable trading by numerous honest and reliable companies, and without any doubt the insurance industry in this country has had one of the best reputations in the world. But, my Lords, you need only one or two occasional failures by companies—they may be spread 100 years apart—whether by failing to meet their commitments or because of failures in certain other areas, and the whole underlying sense of security begins to be eroded. It could perhaps even disappear, with disastrous results to the economy of the country and to our social life as a whole.

As recent events have demonstrated, voluntary controls, however good, have been inadequate, and there are some who would argue that the industry itself has failed and has passed the buck to Government. Although there may be an element of truth here, it has been demonstrated that the whole field of insurance is too big and too complex to be operated entirely by voluntary control. Thus, with the support of the industry, the Government, fairly and rightly, step in. But I hope that this is not the thin end of the wedge or that there may be steppings in other areas—perhaps Lloyds of London, or our chartered accountants, or lawyers, or in other professions which have demonstrated their success under voluntary controls and at maintaining high standards. This is a right and a fair Bill and it has been prepared in co-operation with the industry. It is now the Statutory Instruments or Regulations which are awaited with considerable interest. I hope that in preparing these the Government will not over-restrict or at the same time will not under-protect. There is a very fine dividing line which perhaps we shall come to in Committee.

There are two minor points I should like to make here, and I think that they need to be made. First, there is the role of the actuary, which will need to be clearly defined. I know that the D.T.I. will work in close co-operation with the Government actuaries' department. Secondly—this point was raised by the noble Lord, Lord Diamond—there is the question of investing money with associates. I believe that this needs properly spelling out. It is the Regulations and their implementation which will be critical, and I hope that if ever the Government are called on to act they will do so immediately and with the utmost despatch; for in matters concerning insurance companies any element of fear or doubt must be removed or confirmed immediately if the company and its policy holders are not to suffer. It is the speed of action which I believe will be critical above all else.

My Lords, the final area upon which I should like to touch is the international one, for one cannot look at this problem purely in a national context. Without going into the argument on the question of the nationalisation of the industry I should like to say to the noble Lord, Lord Diamond, that if one took the steps which he suggested, it could have disastrous effects upon our overseas earnings, certainly in the field of invisible earnings, and that does need watching. Your Lordships will be well aware that insurance legislation in most of the E.E.C. countries is far more restricted than our own and is far more pedantic than our own. Your Lordships also will be aware that in general our insurance companies are larger and more powerful than their equivalents on the Continent; and, I hope, more responsible. But the dynamic international expansion of our companies is envied and feared within the E.E.C. and the whole insurance area is at this time a very delicate and sensitive one.

As we move towards harmonisation it would be wrong for us to forget that if we are forced by other members of E.E.C to accept their standards and restrictions our insurance industry could be severely handicapped, our invisible balance of payments would suffer and it would be totally against the national interest. There are many on the Continent who might welcome restrictions which could handicap our own companies and perhaps reduce the competition. It would be very dangerous indeed if they found a way to use this Bill as a foil to encourage greater restriction, and if they were to claim that its introduction has demonstrated the failure of our own insurance industry to maintain proper standards. Thus, my Lords, I end and sit down making this final point. This Bill is a good Bill, but in no way must it be construed as a general indictment of the insurance industry, but rather as a protection from the would-be black sheep of the future.

5.31 p.m.

LORD HAWKE

My Lords, I think my noble friend Lord Selsdon is quite right to refer to the great benefit that could come to our industry through our entry into the European Community. There is no question that we have the best insurance industry in Europe, if not in the world. I should declare an interest here (of course, we all have an interest in this Bill either as insured or insurers), because I am a director of a small company which is virtually a charitable trust. But that does not stop us from being a fairly efficient company. The business, in general, welcomes the Bill, which has been drafted with tremendous cooperation with them. There are some Committee points on which they are not quite satisfied, and I have no doubt that they will be argued in due course.

Many powers already exist. But there has been in the Board of Trade (or whatever they call it nowadays) a reluctance to act. The Department there was probably under-powered, and nobody liked in the old days to take the step of putting in an inspector, which of course was an immediate signal to the world that there was something wrong with the company. Under this Bill it will be possible to have inspections made of very good companies, and I hope that that will be done. If I was the Minister, I would send my inspector first of all to Lord Caccia and his Prudential. Then it would be quite possible in doubtful cases to have an inspector go along without ruining the company. He might find that it was being well conducted. That would be a great improvement on the present situation.

The noble Lord, Lord Stow Hill, has put his finger on an important facet of of this business. He stood up as the apostle of freedom and said: "How can we debar a man from running an insurance company because of unknown charges by bureaucrats behind closed doors?" There is of course great force in that argument. On the other hand, can you leave this important field wide open to the rogues of the world? It is a most attractive field for rogues, particularly from across the Atlantic; and they breed a lot there. You can collect a lot of money, and then you can vanish. Not all forms of roguery are so easy. Once you get your company launched with advertising (they say a "mug" or a sucker "is born every minute), there are always people who will fall for it. You can collect their money and vanish. I think we shall have to stick to the terms in the Bill.

May I, for instance, make a comparison with the money-lending business. I believe you can set up as a moneylender with no character at all. On the other hand, you cannot call yourself a bank, which gives you respectability, without going through a remarkable lot of hoops. I think that that is an analogous case. I do not think the moneylender would find it so easy to collect money from the general public as would somebody vino has permission to call himself a bank.

The noble Lord, Lord Diamond, in his modern role of lugubrious prophet of doom, started out with a catalogue of restrictions. The other day it was a catalogue of records. He gave a good many, but he left out far more than he gave. I think he said that the British people were drinking far more beer than they have ever done before. I believe British swimmers are swimming faster than they ever swam before. All over the world, every day records are being beaten which are quite outside the purely political field in which the noble Lord was wandering. Here he really was a prophet of doom, and his catalogue of restrictions sounded as if the industry was rapidly coming into a straitjacket and would soon end up in Dartmoor. If we consider every other industry in this country, there is not one of which I am aware that has not, again and again, been legislated upon over the years. As people have found weaknesses and loopholes in our law, so Parliament has drawn up a new law. I suggest to the noble Lord, Lord Diamond, that he should start up a bus company and see what sort of restrictions that carries; or even a milk round, which is perhaps a little simpler; or a food or drugs factory. He will find that he is absolutely enmeshed with restrictions the whole time, and he will be very lucky, if he happens to find a loophole, if another Bill does not appear in no time to stop it up. Anything to do with commerce in this country necessitates a series of restrictions as the community finds that it needs to protect itself from the more undesirable citizens.

I think the general public prefer to have some degree of variety in their insurance. I cannot imagine enormous enthusiasm for buying forms at the overworked counters in a post office, filling them up and then going along to try and get your claim paid when the disaster occurs. It is quite fallacious to think that a Government organisation, to pay out as well as take in, could make a great saving in overhead charges. The service would either not be provided or it would cost much the same as at present. For instance, if there is a fire, we expect to have one of our surveyors on the spot within 24 hours; and we expect that there will be an assessor there within perhaps 48 hours. The Government would have to provide these people to do exactly the same.

I think, on the whole that this is a good Bill, but I should like to make one further point. There have been bad insurance companies. They have always been pretty well known to the people in the trade. The reason why people insure with them is because they cut the rates. If you buy cut-price insurance, you get cut price value; and sometimes, if the price is cut too far, you find that your company does not exist any longer. If you pay full price insurance, you get very good attention; and if your company is not strictly legally liable for the loss, you will without fail get an ex gratia payment. That is the virtue of having the operation done by a private system. I cannot see Government Departments paying out ex gratia payments, and I am sure the general public would have no such wish. With other noble Lords, I welcome the Bill, and I am sure that we shall have an interesting Committee stage.

5.39 p.m.

LORD JACQUES

My Lords, I have no financial interest to declare, except that I am a policy holder. But I do not seek to disguise the fact that during my working life I was deeply associated with the Co-operative Movement, in which there is a large co-operative insurance society—in fact one of our biggest societies, with assets of £600 million. And still less do I seek to disguise that my lifetime experience in the Co-operative Movement tends to influence my judgment on some things.

Like my noble friends and other noble Lords, I appreciate the initiative in having this Bill commencing in this House. I also appreciate the very lucid explanation of the Bill which was given by the Minister. Because of the nature of insurance, it is inevitable that there must be a strong need for consumer protection. The policy holder pays a premium and in return he gets a mere promise—a promise that on the happening of some event the insurer will pay. The State must be concerned as to whether the people who make the promise are suitable persons, and it must also be concerned with their capacity to carry out their promise.

It has already been explained that insurance is generally of two kinds: the short term and the long term. The short term, such a household, fire and motor, is on a year-to-year basis. The long term is quite different: it involves the subscription of premiums, very often over a long period of years. Consequently, the sums held by the insurance establishments on behalf of policy holders are exceedingly great, and in those circumstances it is right and proper that the interests of the policy holders should be protected by the State. At the present time there is nothing to prevent anybody from buying an existing insurance establishment, provided that the shareholders are willing to sell.

I should like to illustrate that by giving a quotation taken from the Colour Supplement of the Sunday Times last Sunday. It is a very brief quotation from an article on John Bentley, who is described as a new-style millionaire. It says: His major break came in 1965. He went to see Jim Slater (of Slater, Walker fame) with an incredible-sounding idea which he said would guarantee a return of £100 million for an outlay of only £2.5 million. He'd discovered that an insurance company, Scottish Life Association, was capitalised at a mere £2.5 million, yet controlled book investments worth £40 million and had hidden reserves of another £60 million. The two of them bought up 8 per cent. of the equity before the company's board discovered what was happening. The deal was caught in the bud, but the shares doubled. They had to be content with only a 100 per cent. profit but Slater was so impressed that he took Bentley under his wing. That, I think, shows the way in which anybody can get hold of an insurance company and get access to the huge sums which policy holders have paid. Because of that it is absolutely imperative, so long as we have this system, that the State should protect the policy holders. My noble friend pointed out that this protective legislation commenced one hundred years ago. I am concerned with more recent history, especially the last twenty years.

The large and growing market for motor insurance has attracted some newcomers. The newcomers come in very often inexperienced and prepared to take far greater risks than the established companies. Very often they are prepared to cut the rates in order to get in, and consequently as might be expected, there have been failures. The failure of Fire, Auto and Marine and other companies in the 1960s caused Parliament to strengthen the powers of the Board of Trade in the Companies Act 1967. Despite this, however, in 1971 we had the failure of the Vehicle & General. Overnight this left 10 per cent. of motorists without cover. In addition, it placed other people in a very serious position. For example, the motorist whose car had been damaged by a negligent driver who had been insured by the Vehicle & General had no claim for the damage to his car, except against the driver, who was probably unable to meet the damage.

In an indirect sense the failure of the Vehicle & General affected all of us who drive motor cars, because in 1946 the motor insurers gave an undertaking to the then Minister of Transport that if a court gave a judgment on any liability required to be insured by law and that judgment remained unpaid for seven days, they would meet the bill at once. It was intended that that should cover the uninsured driver or the driver who was ostensibly insured but had not fulfilled all the conditions. But the undertaking was wide enough to cover the failure of other companies, so we now have the ironic position that a newcomer can come into the industry, can cut the premiums and, as a result of his recklessness, become insolvent, and a large part of the bill will have to be met by the established insurers within the industry.

It is estimated that arising out of the failure of the Vehicle & General the established companies within the insurance industry will probably have to meet a bill for £7 million arising out of the undertaking given in 1946. However, the members of the British Insurance Association sustained a loss of £31 million on motor insurance in 1970. I think we can assume, therefore, that if the insurers get this bill of £7 million from the Motor Insurers' Bureau they will have very little choice but to pass it on to the consumer. So all of us, in one way or another, will have to pay for the failure of the Vehicle & General, together with any other failure that there might be in the future in that particular field of insurance. Therefore, I believe that in the present circumstances this Bill is absolutely necessary, and has not come too early.

I should like to concentrate on three purposes of the Bill, which go to the heart of it, and to express an opinion as to where it perhaps does not go far enough and also where it probably goes too far. The first important purpose of the Bill is to strengthen the solvency requirements for general business; that is, the year-to-year business. The Bill does this in two ways: it gives the Department of Trade and Industry power to increase the safety margin, or the solvency margin, whichever one cares to call it, by way of regulations. That means that the Department can insist that the excess of assets over liabilities can be greater than it has otherwise been. Secondly, it gives the Department power by regulations to ensure that the liabilities are not understated and the assets are not overstated.

These are welcome provisions; they are absolutely essential. We shall seek to give further guarantees to the policy holder of motor insurance. My noble friend has outlined some of these. I do not think I need to comment further on them at this stage. I am more interested in the second of the principal objects. This is to strengthen the safeguards against the misuse of assurance funds. This is the long-term business. The Bill does this in a number of ways: first, there is the welcome provision that the assets of the life assurance fund should be separately identified. I doubt whether the provision, as it stands, goes far enough. It is not quite clear whether it would be sufficient to make an apportionment of the assets at the time when the annual balance sheet was prepared, or whether the assets of the life assurance fund have to be kept separate on receipt, and have to be separately identified at all times thereafter. I hope that the provision means the latter.

Secondly, the Bill provides that the assets of the life assurance fund shall be applied only for the purposes of the life assurance, except in so far as the assets exceed the liabilities. I have grave doubts as to whether the clauses on this point go far enough. I hope that we shall bear in mind that the investigation into Vehicle & General showed that it had two subsidiaries, and that they carried on life assurance. From one of these subsidiaries Vehicle & General borrowed £1 million for use in its motor business. The time has come when we should say quite definitely that the life funds of any company shall not be used, not only in any business of that company but also in the business of an associated company. This is good business practice. For example, Jim Stater, shortly after the failure of Vehicle & General, bought from the liquidator one of the subsidiaries carrying on life assurances. He at once declared that the life funds would not be used by his company, or any company with which he was associated. If that was good enough for Jim. Slater, it should be gcod enough for the Government, especially with the Minister's right honourable friend, Mr. Walker, as head of the Board of Trade.

We have doubts as to whether the Bill goes far enough so far as expenses are concerned. The Vehicle & General, in its latter years, charged management fees to its life insurance subsidiaries. There are grave doubts as to whether those fees were reasonable. It is generally thought that the fees which were charged to the life fund of the subsidiaries were excessive. We believe that this problem should be dealt with now, and should be dealt with decisively. It should be the responsibility of the directors and managers of a life assurance company to ensure that no expenses are charged to the life assurance fund which are not attributable to life insurance, and they should certify that they have observed this procedure when they sign the annual return. That is the kind of provision that should be made to stop the milking away of the funds which properly belong to the life policyholders.

Thirdly, the Bill provides that the proportion of excess of assets over liabilities which are distributed to the policy holders should not be materially reduced without appropriate publicity. I am a little concerned as to what is meant by "materially reduced", for I find m Clause 10(2)(b) that it is proposed that the shareholders could, if they so wished, reduce the proportion which goes to the policy holders by 1 per cent. in a year; and that that amount would not be regarded as "material"; it would not require publicity. May I point out that the majority of companies carrying on life assurance take less than 10 per cent. of the profits of life assurance—the figure of 10 per cent. would be rather high, but let us assume that it is 10 per cent. They could take 11 per cent. in one year, 12 per cent. in the next year, and, in the course of a short period of five years, they could increase the proportion taken by the shareholders by 50 per cent. We believe that this particular clause should be deleted from the Bill.

There are also other excellent provisions for the safeguarding of policy holders. In particular, there is the provision that life policy holders shall have prior claim on life assurance funds in insolvency. The liquidator should be required to continue the life assurance business, if possible. This is a very welcome provision. Furthermore, it is provided that a life assurance company cannot be wound up voluntarily. This is long overdue. At the present time a life assurance company can be purchased, it can be put into voluntary liquidation and the benefits can be taken by the new owners, to the disadvantage of the policy holders.

I come now to the last way in which the Bill seeks to strengthen the present controls. It strengthens the power to require information, and to intervene where there is doubt as to the soundness of the company, or the fitness of the directors and managers. As a whole, these prcriisions are welcome because they are, to a large extent, necessary. But we feel that this is a field in which the Bill probably goes too far. I give two examples. First, Clause 19(1) gives very wide powers to the Secretary of State. He can ask any company in the insurance business 'or any information at any time, and can specify that it has to be certified in any way. Those are very wide powers. They are powers that could be unreasonably used by a keen civil servant against a well-established company. Remember, my Lords: a keen civil servant is sometimes regarded as an over-zealous bureaucrat. We believe that the well-established, manifestly sound company should be safeguarded against that possibility. It seems to us that Clause 19 without subsection (1) would be ample to give the necessary controls to the Secretary of State. But if the subsection has to stay, we think it should be qualified; it should specify the grounds when the information can be demanded. We suggest that the grounds in Clause 11(1), (2) and (4) would be adequate for that purpose.

Clause 11(4) is another example of where the powers proposed go too far. As I understand it, Clause 11(4) deals with new companies. It gives the Secretary of State extensive powers in relation to new companies. He has some of those powers at the present time, but he has them for only five years. Under the Bill he would have them indefinitely. Is it reasonable that the Secretary of State should have unusual powers against the new company indefinitely? Surely there comes a point of time when a new company is an estabished company and should be treated like everybody else within the industry. I would suggest that ten years would be sufficient. If the company had not been sufficiently established at the end of ten years, then there would be other grounds in Clause 11 which could be used so that the Secretary of State could exercise the powers.

I may say, too, that I personally was very much impressed by the suggestion that there might be a tribunal as a tribunal of appeal when a person is regarded as unfit by the Secretary of State. I certainly believe that in the interests of the individual there should be some kind of precaution of that kind. In conclusion, my Lords, may I say that, as a measure of consumer protection, we welcome this Bill. We will conscientiously try to improve it in Committee, and we hope that in that spirit we shall have the co-operation of the Government Front Bench.

6.1 p.m.

THE EARL OF LIMERICK

My Lords. I am most grateful—I say this quite sincerely—to noble Lords for the understanding they have shown in this debate: understanding both of the complexities of the subject and of the difficulties which it presents to a Department charged with the protection of the public without undue curtailment of the benefits to be derived by the consumer from a substantial degree of freedom of enterprise. All the comment we have had has been constructive and I shall study it. Inevitably, some insurance managements will make mistakes in the view they have to take of future events. And no less inevitably the Department will make some in assessing the validity of the conclusions and policies of those managements, and in deciding when and how to intervene. Our objective is not primarily to penalise post facto dishonest or incompetent managements, but to protect policy holders by taking or requiring suitable corrective action in time to avert the consequences of imprudent or misguided policies.

I turn now to points to which noble Lords have drawn particular attention, and I shall do my best to illuminate them. The noble Lord, Lord Diamond, was kind enough to give notice of the points which he would wish to examine more closely in Committee, and I appreciate that. As he himself said, most of these are Committee points and I do not think he would expect me to comment on them. I should however like to refer to just two. One was the question of surpluses and the percentage of expenses charged against life funds. That is precisely what our regulations will be for. In the course of discussion with the industry we shall work out an appropriate framework. The second point is the one about investigation and the noble Lord's worry that a well-run company needed protection from the stigma of investigation. I have two points to make on that. The first is perhaps a rather obvious one. How do we know, without investigation, that a company is well run? On the second point, the words I would have used were taken from my mouth by the noble Lord, Lord Hawke, and the point was one I made in my speech. If we have more inspection, the stigma will be greatly diminished and will disappear. I also assume that our inspectors will be knocking on some very eminent doors in the not too distant future. They will become more like auditors, people one expects to see, and their arrival will occasion no comment.

The noble Lord, Lord Diamond, then took us through an historical review, and here again I find myself in close agreement with the noble Lord, Lord Hawke, in that the development we have seen is not surprising. Insurance is a complex industry. It is one engaged in by highly intelligent people using sophisticated techniques. It is therefore not surprising that the poacher and the gamekeeper should be playing leapfrog. I thought Lord Diamond departed from his normal standards of consistency, though, in some of the remarks which he made in that section of his speech. On the one hand, he wants increased protection in the detailed areas which he listed. On the other hand, he complains that the industry finds itself in a straitjacket, which is hardly in accordance with the welcome accorded to this Bill by the B.I.A. He wants less restriction on entering, and he is concerned with the high level of staff which we have for supervision, which, as I could well illustrate in relation to almost any other country, is still very much on the low side. But I am grateful to him for bringing out these points because I think they illustrate precisely the dilemma we have in looking at this whole area of control.

The noble Lord then went on to talk about a more radical remedy. I will not follow him far down the path that leads to nationalisation, except to say, as I feel I should, that I find myself in complete disagreement with his analysis of the Utopia which he expected to find at the end of that road. In particular, I would question his assumptions about the possibility of continuing innovation in a nationalised industry. I would question his assumptions that cost ratios would fall. I do not think that that has been the experience in other fields. Also, like my noble friend Lord Selsdon, I would greatly fear the effect of nationalisation of the industry on its very substantial contribution to our invisible earnings. But I think we shall not agree on this point, and indeed the noble Lord himself recognised that it was outside the scope of this Bill, whatever other Bills might be brought forward on some dim, distant future day.

The noble Lord, Lord Caccia, gave a general welcome to the Bill and referred in particular to the need for skilled manpower for the purpose of supervision. Here I find myself in close agreement with what he said, but I would point out that the skills required for the supervision of the insurance industry, and for the management of insurance companies, are very different skills and require very different techniques. We have recently engaged as a senior adviser to the Department an ex-general manager of one of the big insurance companies; we have an advisory committee; we are exploring with the industry other possibilities in this direction, and it is very much in mind. The noble Lord, Lord Caccia, then referred to Clause 32 and the power of exclusion. He referred to his feeling of discomfort on the question of a tribunal, and this was echoed later on by many other noble Lords. Here I would say that the dilemma is very well recognised. Anyone who has to exercise these judg- ments must feel uncomfortable about them, and I would say also that we are prepared to look at any proposal which is put forward on these lines. I cannot say that I am optimistic that there will emerge a proposal which meets our very real difficulty, on which we spent a long time in discussion and consideration.

It revolves, really, around three things. One is the safeguarding of confidentiality. The second is the burden of proof; think it is the experience of tribunals that if one is set up it tends to behave more and more like a court and demands higher and higher standards of proof. The third is the scope, the very substantial scope, there would be for delaying the proceedings of such a tribunal and for carrying on with whatever activities are complained of, rightly or wrongly, while the tribunal were reaching their findings.

The noble Lord, Lord O'Neill of the Maine, and also, earlier, the noble Lord, Lord Caccia, stressed the importance of the insurance industry for our invisible earnings, and in this I entirely echo what was said. I should like now to say a few words about what is emerging as the central worry of most noble Lords who have taken part in this debate, and that revolves around the "fit and proper persons" provisions and was introduced by the noble Lord, Lord Stow Hill, in relation to Clause 32. I listened with interest and with enjoyment to his remarks on this subject and I should like to study them carefully. I was also grateful for the precedent which he gave us concerning admission to the Bar.

I should also like to say a word about how we stand on the question of authorisations and change of control. With authorisations for companies seeking to enter de novo into this business there is no major change in prospect from the 1967 régime. We have two small changes: the first is introduced by the new definition in Clause 2 of controllers and managers—that is, persons in respect of whom the "fit and proper person" provisions criteria are applied. The second—and this was a point raised by the noble Lord, Lord Jacques, a moment ago—is the necessary lapsing of the provision that special supervision will last only for five years after authorisation. It lapses necessarily because we move into an area where there is a new system of control and where the new control, which is a continuing control, will apply in place of this special provision that new companies should be supervised in a special way for five years. When we come to changes of control—the Clause 32 question—the provision for prior approval of persons proposing to become controllers is a new one, which comes in in place of a restrictive action which it was only possible to apply after the event had taken place, which I think the House will generally agree must be an unsatisfactory situation.

The next difference is that a manager, and in appropriate cases also a controller, should have the right (Clause 22(1)) to be heard before the company is made aware of a possible complaint against him, which I think is a new and substantial safeguard against a situation which might leave a slur on his character if it were not satisfactorily cleared up in the course of a discussion. So there we have moved a step towards meeting this worry, rather than the contrary. Previously, the reason had to be given to the company but not as of right to the individual, although customarily it was generally given to the individual. As the Bill proposes, it will now be necessary to give particulars of the matter concerned in these cases.

This brings me to the question of appeal, and I should like to study in detail what the noble and learned Lord, Lord Stow Hill, said in this connection. I think we all acknowledge the great difficulty of this area, and indeed I stress it myself. I can recall recent cases where the new associates of a person intending to enter into the insurance industry were quite unaware of his unsatisfactory past record. So there is a real point in these provisions. The noble and learned Lord, Lord Stow Hill, then referred to the impregnable position of the Department or the Minister when they merely sat tight and said, "We are not going to tell you any reason why we object to you". I would just point out that there is always the right of appeal to the Parliamentary Commissioner (Administration) in cases where it is felt that a substantial denial of justice may exist. I would also point out that the public expects the Department, as the supervising authority, to have perfect judgment—perfect judgment, due to the advantage of hindsight. We do not like sitting on a horn—and this is a dilemma; one cannot avoid it, but I think we have become somewhat hardened in a certain part of our anatomy since 1967. This subject was very well explored in the debates that took place in 1966 and 1967 and I anticipate that we shall go over much of that ground, and by all means let us explore it.

The noble Lord, Lord Selsdon, made one other point with which I should like strongly to agree, which is the necessity for speed of action when this can be seen to be the necessary means of protecting the interests of policy holders. This, of course, is what a substantial part of this Bill is all about. I agree also with the noble Lord that the Bill is in no sense an indictment of the past performance of the industry at large. Indeed, it has had the general welcome which has been referred to by several noble Lords. I think the Bill will encourage the healthy development of the industry. I have already referred to two points made by the noble Lord, Lord Hawke. I should like now to refer to a third one, which is his reference to the necessity and desirability of competition, which I believe is a strong point. As we stand to-day there are under the supervision of the Department 760 insurance companies from which insurers can choose. In the motor field alone—and this includes Lloyds—there are some 270 motor insurers from whom the motorist can make his selection.

The noble Lord, Lord Jacques, made a number of points to which I have no doubt we shall return; therefore I shall not comment on them all. He started by declaring his interest as a policy holder, and that struck me as interesting, because I doubt whether there is a single noble Lord who would not have that interest as a policy holder. That is just the point: it is a very wide-ranging industry and that is why it needs such special treatment. The noble Lord referred also to the hardships arising from the V. & G. case, and here again this illustrates the reason why we are asking for these new powers. The basic trouble there was that premiums were too low; so, to a degree, of course, what he says is absolutely correct: that we are asking the insurers of the future in some way to pay for the losses of the past. The noble Lord then asked one or two specific questions and I think I can reassure him on at least two of them. The first was about the segregation of long-term assets, and here indeed it will be necessary, as soon as these provisions become operative on the time table which is apparent in the Bill, that they shall be separately identified at all times in the records of the company and not merely in annual returns. The noble Lord referred to the question of expenses and we expect to lay regulations which will deal with their proper apportionment on reasonable commercial terms implicit in a proper use of long-term assets.

Then the noble Lord moved to an area which we all acknowledge to be of great difficulty, and I listened with sympathy to what he said, which was in regard to the integrity of funds which represent the interests of long-term policy holders. Nevertheless there are problems in this area. For instance, if the top company is a life company and it has subsidiary companies engaging in general insurance, it may be, as seen from a record extending over decades that the business is conducted in this way entirely properly, without any prejudice to the present or foreseeable interests of policy holders. Nevertheless this sort of situation is hard to disentangle. There are all sorts of legal complications and taxation complications in transferring assets from one company to another which would have to be taken into account. As we stand today, we are seeking wide powers ad hoc. We shall have our quarterly reports when we hear of something going wrong and we shall be able to move in quickly and prevent the making of new investments or loans, as the case may be. But a general prohibition is rather a different matter and there are problems which would have to be discussed. I have no doubt that the noble Lord will have noted that under Clause 3 we have power to bring into effect arrangements to ensure the impossibility of having life business conducted in future in the same company as general business.

LORD JACQUES

My Lords, would the Minister agree that it would be good for investment of life funds in the same company or the same group of companies to be prohibited, except with the consent of the Secretary of State?

THE EARL OF LIMERICK

My Lords, that is a rather difficult point and I should not like to give an off the cuff answer. Perhaps it would impose a heavy and unnecessary duty on the Secretary of State. But certainly it is a matter about which I should be happy to think. The noble Lord, Lord Jacques, mentioned two areas in which he thought we had gone too far. One was in respect of Clause 19(1); he is worried about the possible actions of some keen civil servants. I am happy to say that keen civil servants do exist. Experience, however, has shown that if they show too much keenness they upset the recipients of their demands and it is not very long before a complaint comes back to a higher authority and keenness is put back into its proper perspective in this sphere of supervision. The noble Lord also referred to his worries about Clause 11(4). I think I have already dealt with these; this is the question of the five-year limit. I hope that I have answered most of the points that were raised in the debate and certainly those that can be answered at this stage. It only remains for me to thank noble Lords who have taken part, and I shall be looking very closely at what they have said.

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