POLICYHOLDERS PROTECTION BILL [H.L.]

HL Deb 16 June 1975 vol 361 cc666-758

3.1 p.m.

Report of Amendments received.

Lord PEDDIE moved Amendment Nos. 1, 2 and 3:

Before Clause 1 insert the following new clause:

Restrictions on issue of long term policies ("Restrictions on issue of or alterations to long term policies and on investment of long term business

.—(1) An authorised insurance company established in the United Kingdom shall not issue a long term policy of any description, and an authorised insurance company established in a country outside the United Kingdom shall not issue a long term policy of any description where the contract of insurance evidenced by the policy was made in the United Kingdom—

1. (a) if the premium chargeable under the policy is not in accordance with premium rates fixed for that description of policy with the approval of the person who is for the time being the actuary to the company under section 15(1) of the Insurance Companies Act 1974 or section 3(5) of the Insurance Companies Amendment Act 1973; or
2. (b) if the policy terms are not in accordance with policy terms fixed for that description of policy with the approval of the actuary to the company.

(2) An authorised insurance company shall be deemed to have the approval of the actuary to the company for the premium rates and policy terms for any description of policy only when it has obtained and submited to the Secretary of State—

1. (a) a certificate for that description of policy signed by the actuary to the company certifying that in his opinion the premium rates are adequate and in accordance with sound insurance principles and that the policy terms are in accordance with sound insurance principles; and
2. (b) a statement for that description of policy signed by the actuary to the company setting out the terms of the policy and the formula and basis by which the premium rates have been calculated, including for this purpose the mortality and interest bases, a statement of the provisions for taxation and expenses, and the maximum rate of commission provided for.

(3) The actuary to the company shall not for the purposes of this section approve premium rates for any description of long term policy unless he is satisfied that they are adequate and in accordance with sound insurance principles, nor shall he approve policy terms for any description of policy unless he is satisfied that they are in accordance with sound insurance principles.

(4) Where in the case of any authorised insurance company premium rates for any description of long term policy are approved by the actuary to the company, the company shall not pay or allow in respect of any policy of that description any commission or other remuneration in any form to persons not in the employ of the company, greater in cost to the company than the maximum rate of commission certified by the actuary.

(5) The actuary to the company in giving his approval in respect of the premium rates or policy terms for any description of long term policy shall state whether, in his opinion, there are any circumstances in which it would become unsound for the authorised insurance company to continue to issue policies of that description on the basis of the certificate and statement required by subsection (2), and the company shall not in those circumstances continue to issue policies of that description.

(6) An authorised insurance company which issues a long term policy or pays or allows a commission or other remuneration in contravention of this section shall be guilty of an offence.

(7) A person guilty of an offence under this section shall be liable—

1. (a) on conviction on indictment, to imprisonment for a term not exceeding two years, or to a fine, or to both;
2. (b) on summary conviction, to a fine not exceeding £400."

Insert the following new clause—

Restrictions on alterations to long term policies

(".—(1) An authorised insurance company established in the United Kingdom (in respect of a long term policy of any description) and an authorised insurance company established in a country outside the United Kingdom (in respect of a long term policy of any description where the contract of insurance evidenced by the policy was made in the United Kingdom) shall not—

1. (a) grant a surrender value, unless the amount of such surrender value is in accordance either with a scale guaranteed on the issue of the policy which scale is one of the policy terms, or with a scale in being at the time of surrender and fixed for that description of policy with the approval of the person who is for the time being the actuary to the company under section 15(1) of the Insurance Companies Act 1974 or section 3(5) of the Insurance Companies Amendment Act 1973:
2. (b) grant a paid-up policy, unless the amount of such paid-up policy is in accordance either with a scale guaranteed on the issue of the policy which scale is one of the policy terms, or with a scale in being at the time of conversion to a paid-up policy and fixed for that description of policy with the approval of the person who is for the time being the actuary to the company; or
3. (c) otherwise make a financial alteration to the policy, unless the terms of such alteration are in accordance either with a basis guaranteed on the issue of the policy which basis is one of the policy terms, or with a basis in being at the time of alteration and 668 fixed for that description of policy with the approval of the person who is for the time being the actuary to the company.

(2) An authorised insurance company shall be deemed to have the approval of the actuary to the company for the scales of surrender values and paid-up policies for, and the basis for the financial alteration of, any description of long term policy only when it has obtained and submitted to the Secretary of State a certificate for that description of policy signed by the actuary to the company certifying that in his opinion such scales and basis are in accordance with sound insurance principles.

(3) The actuary to the company shall not for the purposes of this section approve scales of surrender values and paid-up policies for, and basis for the financial alteration of, any description of long term policy unless he is satisfied that they are in accordance with sound insurance principles.

(4) The actuary to the company in giving his approval in respect of the scales of surrender values and paid-up policies for, and basis for the financial alteration of, any description of long term policy shall state if, in his opinion, there are any circumstances in which it would become unsound for the authorised insurance company to continue to use such scales and basis for that description of policy, and the company shall not in those circumstances continue to use such scales and basis.

(5) An authorised insurance company which uses a scale of surrender values for, a scale of paid-up policies for, or a basis for the financial alteration of, any description of long term policy in contravention of this section shall be guilty of an offence.

(6) A person guilty of an offence under this section shall be liable—

1. (a) on conviction on indictment, to imprisonment for a term not exceeding two years, or to a fine, or to both;
2. (b) on summary conviction, to a fine not exceeding £400.")

Insert the following new clause—

Restriction on investment of long term business.

(".—(1) Every actuary who in his professional capacity signs a certificate after the passing of this Act relating to an authorised insurance company in accordance with Regulations made under section 13(3) of the Insurance Companies Act 1974 or under section 4(3) of the Insurance Companies Act 1958 shall at the same time inform the company in writing of the nature of the changes in the investments of its long term business which may affect the validity of his certificate, and in so doing shall have regard to the nature of both the liabilities and the assets of the long term business of the company.

(2) An authorised insurance company shall not make a change in the investments of its long term business of the kind specified in subsection (1) above without first obtaining and submitting to the Secretary of State a certificate signed by the actuary referred to in subsection (1) above certifying that in his opinion the proposed change does not affect the validity of his certificate referred to in subsection (1) above, or if the actuary referred to in subsection (1) above is not the person who at the time of the proposed change in investments is the actuary to the company appointed under section 15(1) of the Insurance Companies Act 1974 or section 3(5) of the Insurance Companies Amendment Act 1973. a certificate from the actuary so appointed certifying that in his opinion the proposed change would not affect the validity of the certificate referred to in subsection (1) above.

(3) Any person who makes a change in the investments of the long term business of an authorised insurance company in contravention of this section, or is aware that such a change is being made and does not inform the Secretary of State shall be guilty of an offence.

(4) A person guilty of an offence under this section shall be liable—

1. (a) on conviction on indictment, to imprisonment for a term not exceeding two years, or to a fine, or to both;
2. (b) on summary conviction, to a fine not exceeding £400.")

The noble Lord said: My Lords, with the permission of the House, I should like to move Amendments Nos. 1, 2 and 3 together. Noble Lords will be aware that a consideration of this important Bill has been most interesting and, indeed, illuminating. On Second Reading there was an almost universal condemnation of the Bill, primarily because it was considered as inadequate to fulfil the purpose which the Title indicated. At the Committee stage, my noble friends and myself and others moved a series of Amendments and each in turn was withdrawn. At times, some may have wondered why that policy was pursued. It was pursued because we recognised that this is an exceedingly technical Bill and my noble friends and I were anxious that the House, together with the Government, should have adequate opportunity to consider in detail the various points that we were making. Thus at Report stage we hope that Members of this House will probably be better informed and certainly have a clearer idea of what we have in mind.

Some discussions have taken place and my noble friends and I have now tabled only four Amendments, all of them being concerned with important points of principle. At least, we had tabled four Amendments up to Thursday of last week but then an extremely important Government Amendment, No. 62, appeared, which reintroduced the rescue provision on the lines of the old Clause 16 which was lost at Committee stage after the first debate, and my noble friends and I considered it necessary to table an Amendment to that Government Amendment.

These three Amendments are concerned with two vital principles. First, the preventive legislation must be strengthened so as to prevent the irresponsible management practices which led to the failure of two fringe life insurance companies last year; and hence reduced substantially the chance that any fringe insurance company would fail in future. That, I contend, should be the most important feature of a Bill of this description. The second point of principle is that if, nevertheless, a fringe insurance company fails so badly in future that the Policyholders Protection Board has to incur expenditure in order to protect the policyholders of the failed company, then the cost of meeting that expenditure should be borne as fairly as possible. Those, then, are the two basic principles.

These three Amendments are concerned with strengthening the protective legislation. They are identical with the Amendments that were moved at Committee stage, when my noble friend Lord Beswick said that he entirely shared the spirit of the Amendments and so did the Government. I was very pleased indeed that the noble Lord, Lord Aberdare, also showed sympathy with the Amendments and expressed the view that I should have everyone's sympathy in trying to put prevention ahead of any sort of later rescue. Noble Lords will recollect that it was suggested at the time by the noble Lord, Lord Beswick, that these Amendments fell outside the scope of the Bill and he may be still of that opinion. My noble friend and I simply cannot accept that view, and I sincerely hope that the point of view which I am expressing is shared by this House.

This Bill is concerned with policyholders' protection—that is the Title of the Bill—and there is no better way of protecting policyholders than by preventing the failure of insurance companies. The Bill is also concerned, if an insurance company fails, with levying policyholders in all other insurance companies in order to provide funds so that a minimum level of benefit can be paid to the policyholders in the failed company. To protect the policyholders in all the other insurance companies it is therefore highly desirable to reduce to a minimum, by strengthening the protective legislation, the risk that a fringe company may fail. For both these reasons, it seems to me to be beyond doubt that the new clauses in these Amendments are fully within the scope of the Bill and are, indeed, more important for policyholder protection than any other provisions in this Bill. That point of view was confirmed and supported by a succession of speakers on Second Reading.

In essence, these new clauses provide that an insurance company may not issue or alter life insurance policies or change the investments of its life insurance funds on terms which the appointed actuary of the company considers would imperil the solvency of the company, although of course the company has the right to change its appointed actuary with the knowledge of the Department of Trade. As I pointed out in Committee, the present legislation requires the annual accounts of every life insurance company to obtain a certificate from the actuary certifying the solvency of the company, but it seems utterly ridiculous to have such a statutory requirement when the actuary's certificate can be invalidated even immediately after it has been given by a switch in the investments made by the proprietors, possibly even without the knowledge of the actuary. As my noble friend Lord Brown pointed out on Second Reading, Clause 12 in this Government Bill provides for excessive life assurance benefits of failed companies to be scaled down in accordance with an actuarial report. Would it not then be better to require the actuarial assessment before the policies are offered, and prohibit the issue of policies on known unsound firms? This is precisely what Amendment No. 1 does.

All the regulations under the 1973 and 1974 Insurance Acts have not yet been made, but a memorandum from the Department of Trade dated 25th May 1975 states that it is intended to require quarterly certificates from their appointed actuary that would ensure that new policies are issued subject to sound insurance principles and also that the quarterly actuaries' certificates shall come in on the acceptability of changes in investment since the previous quarterly certificate. What is the significance of that? It is just this: that the Government are virtually at one with my colleagues and myself except for the vital difference that the Government propose to rely on quarterly returns after the event, after the reckless management act has taken place, whereas my noble friends and I think it is essential to prevent such actions. Once a fringe company has issued a large block of policies on unsound terms, policies requiring lump sum payments from policyholders, or invested a large proportion of the life insurance funds in an unsuitable investment, no subsequent quarterly reporting can prevent that company from being in trouble if conditions become adverse.

The Government never denied that even if all the regulations had been made, the present legislation would not have prevented the reckless management which led to the failure of Nation Life and London Indemnity. As I indicated in Committee, it would be surprising if complicated new clauses such as these were presented in their best form even though tremendous care has been taken in their drafting. I would emphasise that the important matter is in the principle that the Amendments are accepted. Discussions can then take place between the Government, professional bodies, insurance trade associations and representatives of consumer interests and if need be modifications to the wording can be made later.

May I make one final point? I mentioned in Committee that the Institute of Actuaries had some reservations about the proposed new clauses, but it has indicated that it would be prepared to consider positive proposals for strengthening the preventive legislation, which is what these new clauses are. Of course I would emphasise, as I did previously, that the Institute is not the only organisation concerned. The purpose of the new clauses is to protect the public and the policyholders and I agree that the Institute should be fully consulted before the additional duties are placed on actuaries. As I said when moving the corresponding Amendment in Committee, in my opinion these proposed new clauses are the cornerstone of genuine policyholder protection and are of the greatest importance. Therefore I sincerely hope that my noble friends, the Government, will accept these proposals intended to strengthen the Bill. I beg to move.

3.14 p.m.

The MINISTER of STATE, DEPARTMENT of INDUSTRY (Lord Beswick)

My Lords, as my noble friend said, the Committee stage was interesting and illuminating, and I hoped he was going on to say that it was also constructive because some very interesting and constructive contributions were made as a consequence of which we have what I hope will be an acceptable run of quite basic Amendments. I hope very much that the House will agree that, by and large, we have made of this Bill, which was criticised at the beginning, something which broadly can be accepted by us all. The fact that we have proposed these constructive Amendments makes me all the more sad that I cannot start by accepting the Amendments proposed by my noble friend. I cannot accept them for reasons which I hope and believe will be understood by the House.

I made it clear at the Committee stage—and my noble friend has reminded me again this afternoon—that I expressed sympathy with the aim of these Amendments. He wants to ensure that the terms of all policies are in accordance with sound insurance principles. It is with this in mind that Clause 12 is included in the Bill, to reduce the protection to be provided by the Board below 90 per cent. to the extent that benefits under long-term policies are excessive. As to the specific provisions of these Amendments, we believe that they are unnecessary because, under our existing powers in the Insurance Companies Act 1974, we are already going most of the way towards achieving the objectives which my noble friend is seeking. Quite rightly, he places great emphasis upon prevention; but the fact is that this is not the vehicle through which we seek to get prevention. This is a Bill for protecting the policyholder and the prevention of the sort of things we have in mind suggest that we want to protect the policyholder if something goes wrong. That is done by the 1974 Act, and that Act has been and will be used for the purposes that my noble friend seeks.

The Secretary of State will shortly be laying regulations before Parliament to require companies to submit to him quarterly returns and accompanying certificates from appointed actuaries designed to ensure that long-term insurance business is conducted in accordance with sound insurance principles with regard to premiums and policy conditions. My noble friend says that these will be quarterly reports, and although I think he agrees that quarterly reports keep the Department more up to date than annual reports he maintains that it would be possible, after the submission of a report, for a company immediately to vary the conditions of their policy. If an insurance company does that sort of thing I should have thought they would have been caught in other ways.

I was most interested to hear what my noble friend said in his Amendment about the kind of things he would wish to see provided for by law, He says that there shall be a statement for that description of policy signed by the actuary to the company setting out the terms of the policy and the formula and basis by which the premium rates have been calculated, including for this purpose the mortality and interest bases, a statement of the provisions for taxation and expenses, and the maximum rate of commission provided for. Supposing that statement were put to the Department before any policy was concluded or together with any policy, all these details apparently would have to be considered by the Government. If this company about which my noble friend is suspicious went ahead before obtaining the agreement of the Government, then he is not achieving anything more than he would get from the Bill as I have now redrafted it. On the other hand, if the company had to wait until a Government Department goes into the terms of the policy and the formula and the basis by which premium rates have been calculated, including for this purpose the mortality and interest bases and all the rest of it, what sort of business is the insurance company going to conduct?

I should have thought it would be quite impossible for business, if carried on in this way. Indeed, although my noble friend quoted the President of the Institute of Actuaries as apparently in support of what is proposed here, in fact he was not entirely guiding the House aright, because the President of the Institute of Actuaries, in a letter to the Economist dated 24th May, said: The regulations under the Insurance Companies Act 1974 are likely to provide for quarterly reporting including a certificate by the actuary, with responsibility to comment on any dangerous trends which might lead to insolvency—for example, inadequate premiums rates for investment speculation at such short intervals will provide a much improved early warning system for the controlling authority. Then he says that the responsibility here should be placed fairly upon the profession. The actuary, as Mr. Bailey says, has a vital and central role in all this to provide objective professional reporting to the Government, the company, policyholders and the public. He has nowhere, so far as I can make out, asked for any further preventive legislation other than that which will emanate by regulation under the 1974 Act.

If we got to the situation which my noble friend is advocating to the House, we should he getting very near to complete control of insurance business by a Government Department. In the final paragraph of a letter which he also sent to the Economist, Mr. Toogoode, the chairman of the Co-operative Insurance Society, said: The only alternative may be the Government control of premium rates, policy terms and investment policies, which I for one would very greatly regret. That is what Mr. Toogoode would get, in effect, if we had subsection 2(b) as the law of the land.

In addition to all that, my noble friend will be aware also of the guidance notes issued recently by the two professional bodies, the Institute of Actuaries and the Faculty of Actuaries in Scotland, for the guidance of appointed actuaries. These state quite explicitly that premium rates, policy conditions, surrender values, and so on are matters on which the actuary must be informed by the company. It is incumbent on him to make sure that the necessity for such information is fully understood by the company, and that suitable arrangements are made to ensure that this information is forthcoming. If the actuary is not satisfied with this or with other matters vitally affecting the prospects of the company, he is advised to notify the Department of Trade. So, together with the regulations which it is proposed to issue under the 1974 Act, there is already under this Bill a clear and firm control of all these matters. Given these guidance notes and the arrangements to be made for quarterly certificates, we see little difference in practice between what is proposed in the Amendment and what will happen in future under the arrangements already proposed.

So far as Amendment No. 3 is concerned, again I share the view of my noble friend that our control over insurance companies' investments must be strengthened. I assure him we are engaged on preparing regulations designed to do exactly that. On the 1st February this year we brought into operation new regulations made last December on the valuation of the assets of insurance companies. We hope to follow this up later in the year with regulations on the admissibility of assets. It is also our intention to revise the terms of the appointed actuary's statutory balance sheet certificate so as to include specific reference to the long-term business assets, although the precise wording is still under consideration.

Therefore, I hope my noble friend will accept that under existing powers we are already going a long way to achieving the objectives he is seeking. We have already discussed, in connection with the previous Amendment, the regulations that the Secretary of State will shortly be laying before Parliament requiring quarterly actuarial certificates from companies' actuaries, and the guidance notes issued by the two professional bodies. The latter refer explicitly to the existing investments and the continuing investment policy as being included in these matters on which information must be made available to the appointed actuary. As I have already said, it is incumbent upon the appointed actuary to make sure that the necessity for such information is fully understood by the company, and that suitable arrangements are made to ensure that this information is forthcoming. Therefore, while I understand and sympathise with what my noble friend is seeking, I hope that he will realise we are already well on the way to achieving what he is after.

3.25 p.m.

Baroness FISHER of REDNAL

My Lords, before my noble friend sits down, may I say that it has been very difficult for noble Lords to make Amendments to this Bill for the simple reason that many of the regulations which my noble friend has just enunciated are unknown to us as individuals. Of course, my noble friend, as the Minister in charge, has prior knowledge. Therefore, had it been possible for regulations to the previous Insurance Act to have been brought before the House at an earlier date, we should not now be in difficulties in debating this Bill.

One has to accept that what my noble friend Lord Peddie is saying is that prevention is better than cure. All Governments of any political complexion do not accept this premise. They always seem to legislate after the offence, whatever it is, has taken place, when they feel they have got to do something about it. I was interested to hear what my noble friend said. There are people who go in for certain doubtful investments with policyholders' money, without the approval of the actuary. They indulge in the practice of altering policies, and altogether operate under unsound business principles. But they will not be the ones to be caught in other ways. I should like my noble friend, if he can, to give the ways and means by which these people will be caught in other ways, inasmuch as I can say from my reading of the Bill that the only people to he caught in other ways will be those little people, if I may use the term, who insure with what, for want of a better word, we would call the reputable insurance companies—the Mrs. Browns and Mrs. Joneses, who my noble friend completely understands because of his previous service in the other place. So could my noble friend tell us more specifically how those regulations will operate, so that in the future the people who are doing very well out of unsound business practices will pay the penalty as much as the small people.

Lord ALLEN of FALLOWFIELD

I rise to support the statement made by the noble Lord, Lord Peddie, in moving Amendments Nos. 1, 2 and 3. In doing so, it is absolutely necessary to recall the debate that occurred on Second Reading. Anyone who listened to that debate could not help but reach the conclusion—and I must submit that nothing my noble friend the Minister has said in his reply leads me to any other conclusion—that we are at present debating a thoroughly bad Bill. Indeed, there is no doubt at all about that, because of the massive num- ber of suggested Amendments, mostly in the name of the Government. I think it is charitable to describe it as a thoroughly bad Bill. In my considered view, the evidence submitted against the Bill is very convincing indeed.

My noble friend the Minister, in reply to my noble friend Lord Peddie, said that the Bill is for protecting policyholders. My Lords, the main reason for the opposition to the Bill—and I regret that I have to remind my noble friend of this—is that the scheme is extremely unfair to policyholders in traditional insurance companies who could never benefit from the guarantee scheme but who will be called upon to pay the levies. This much has been said very many times in previous debates; indeed it has been stressed also by the chairmen of a large number of insurance companies in statements they have made from time to time to their shareholders and others.

It is not always realised—and I am wondering whether the Minister realises; I am sure he does, but he gave no indication of it in his reply—that nearly two-thirds of the money paid in life assurance premiums, excluding pension schemes, is paid to the familiar insurance man calling at the door, and much other life insurance is taken out by persons with comparatively low incomes. These would be the people who would pay most of the cost of the levies, whereas the fringe insurance companies, the inefficiency of whose conduct is the motivation of this Bill, have issued mainly speculative types of policy requiring substantial lump-sum payments.

The Department of Trade has argued, in correspondence and elsewhere, that the policyholders of every insurance company will gain extra protection because of the scheme, because an insurance company which is sound when a policy is taken out can fail at some later date when the policy is still in force. I submit that this totally ignores the difference in character between the traditional life assurance companies, which issue the bulk of their policies on a with-profit basis, which because they can always reduce bonuses in adverse conditions cannot become insolvent, short of an economic catastrophe against which no guarantee scheme would be of any use at all, and the more recently formed fringe life insurance companies, which have issued the bulk of their policies with purportedly guaranteed benefits. In the non-life field it also ignores the difference between the large established companies with immense reserves, which no guarantee scheme would protect in the extremely unlikely event of their becoming insolvent, and the fringe companies operating on a different basis.

My Lords, the Bill provides for no strengthening of the preventive legislation. My noble friend the Minister has made a host of promises, but it is very difficult to identify within the Bill the kind of strengthening that would be necessary if we are as of now dealing with cure and not prevention. The essence of the Amendments, the essence of the opposition to the Bill throughout, has always been prevention as opposed to cure. Although when all the provisions of the 1974 Act have been brought fully into force by the regulations the protection will be considerably strengthened, nevertheless the unsound management practices which led to the failure of Nation Life and London Indemnity will still not be prevented. In our view, in the view of the sponsors of the Amendments, they should be prevented, and specific proposals have been put forward to that end. I conclude in the way I started. I believe this is a thoroughly bad Bill. The commentary on it is the fact that there are a massive number of Amendments. I support the Amendments put forward by my noble friend Lord Peddie, and his opposition to the Bill.

3.34 p.m.

Lord ABERDARE

My Lords, as the noble Lord, Lord Peddie, mentioned my name, perhaps I may say a few words. I preface my remarks once again at this stage, and I hope that other noble Lords will do the same, in declaring my interests in this matter. I am a director of a small life insurance company and also an underwriting member of Lloyds. I repeat what I said previously, on Committee, that I have a great deal of sympathy with the noble Lord, Lord Peddie, and those who support him, in respect of one thing, that prevention is better than cure. Indeed, there can be no question but that that is also the point of view of the Government. But I am not so sure that the proposals that they are putting forward for this Bill are really either right or indeed practicable. I believe that the preventive measures that noble Lords want to see are indeed much more appropriate to the 1974 Act. I believe too that the regulations that are currently being made under that Act will certainly strengthen the prevention powers of the Department, and I wonder very much whether the noble Lord, Lord Allen, is correct in saying that these powers would not have prevented a disaster like Nation Life. There were certain aspects of the Nation Life affair which, if at intervals the investments were being looked at by the Department, I should have thought would have emerged and would have brought about the prevention of that disaster. However, that is no doubt a matter of opinion.

I am satisfied by what the noble Lord, Lord Beswick, said, that the Government think that these regulations are the best means of preventing disasters. I think that the proposals in these Amendments may well go a little too far. First of all, in the direction of overcontrol, I do not think it appropriate that every proposal for every policy put forward by every insurance company should be vetted by the Government. I think it much more appropriate that the quarterly control system should be introduced. The other point is that I do not really think that the Institute of Actuaries is very happy about coming in to the extent to which the noble Lord, Lord Peddie, wishes. The noble Lord said this was only one of many bodies involved, but it is certainly the most important body in the context of the new clauses which he is proposing. My hope is that the noble Lord, Lord Peddie, will not press these new clauses on the House. I think he has done a service in drawing attention to the need for preventive measures, but for my money the preventive measures the Government are envisaging are just about right, and the Amendments proposed go too far.

Lord BESWICK

My Lords, I am grateful for what the noble Lord, Lord Aberdare, has said, and certainly it is true that I am every bit as keen as he and my noble friends to see that prevention is strengthened, but I simply say again that the instrument for strengthening control is the 1974 Act and not this Bill. My noble friend Lord Allen said that this was a thoroughly bad Bill. If he will allow me to say so, I recognise that phrase in two documents that I had this morning from the CIS. One of them, I see, is dated 9th January 1975, and the other is dated April 1975, and both these dates predate the consultation which is going on. The massive number of Amendments to which my noble friend Lord Allen refers do really change this Bill, and what may have been a thoroughly bad Bill is now an acceptable Bill. I would hope, therefore, that he would not belabour me too severely, because he is looking at the Bill before the Amendments we have in mind.

My noble friend Lady Fisher of Rednal said ought we not to have known before now about the regulations to which I have referred. Of course, the regulations were laid before the House, and it is quite possible for anyone to study those regulations. The insurance industry itself has been applying those regulations as from December and, of course, is well aware of them. The new batch of regulations to which I referred are not yet drafted, but they will come before this House and there will be an opportunity for everyone to study them.

My noble friend Lady Fisher was obviously doubtful about the extent of the proposals for strengthening prevention which are contained in the new guidelines issued by the Institute of Actuaries and the Faculty of Actuaries of Scotland. I see in paragraph 4, for example, that the duties of the appointed actuary include the following. They have to be aware of the premium rates on which existing business has been and current new business is being written. They have to be aware of the nature of the contracts in force and currently being sold, with particular reference to all guarantees, existing investments and the continuing investment policy. They have to be aware of the marketing plans, in particular the expected volumes and cost of sales, the current and likely future level of expenses, and the extent of the company's free estate. They are all provisions which, as the guidelines say, must be made available to the appointed actuary for him to carry out the necessary financial investigations and to be able to satisfy himself as to the continuing financial state of the company.

With that knowledge before a professional body, surely it is going to be more difficult in future to carry out any malpractices. The only difference between us here is whether the responsibility should be placed upon a professional body of that kind or whether we are to have a Government Department going over a policy and ensuring that it comes up to the sort of standards that are set out in these guidelines.

My noble friend Lord Peddie said that although the actuary may provide a certificate based on this kind of information, it would be possible for a director or the directors of an insurance company to ignore the actuary's report or certificate. If that is so, then it would be an unusual body of directors in charge of an insurance company. If any director ignored the certificate of the actuary, it would be possible under Section 28 of the 1974 Act for that director to be declared by the Department of Trade as unfit. If the directors are declared unfit, the company can be stopped from carrying out further business. I beg my noble friend to believe that there is now considerable control, and that that control will be strengthened even further. On the basis of those assurances, I hope that my noble friend will be able to withdraw these first three Amendments.

3.43 p.m.

Lord SHINWELL

My Lords, there is just a possibility—I shall not say a probability—that there may be a Division, and I want to know where I should go: to the right or to the left. I make a confession: apart from being a policyholder I am completely ignorant of the technicalities of this measure. I want an assurance from my noble friend the Minister that, as a policyholder, at some stage of the remainder of my mortal existence I am not going to be levied. May I have an assurance of that kind, because that seems to me to be fundamental? Policyholders universally—not in particular—must be faced with the same situation; they do not want to be levied. In particular they do not want to be levied if they are not responsible for any misdemeanour. It may be that the misdemeanour, if any, is due to the real culprit, the insurance company that defaults, and the policyholder is quite an innocent party. We who are policyholders ought to be given an assurance by my noble friend that we shall not be levied at some time.

This is a remarkable Bill—I will not say it is a bad Bill. It is remarkable because those who have proposed the Amendments have declared it to be a bad Bill. They go further than I am prepared to go. However, my noble friend the Minister admitted that the original Bill was also a bad Bill. It seems to me that if the Government produce a bad Bill, that is a good reason for opposing it. I do not know whether that would appeal to Members in general, but that is how it appears to me. It is another reason why, if there is a Division, I feel inclined to support my noble friends.

I do not like the coalition that has emerged. We are getting too many of these coalitions. Indeed, the newspapers today are full of the prospects of further coalitions. The Conservatives have given an assurance—I used the term "assurance" in another context earlier in my remarks—that if anything happens to the Government, or is likely to happen, they are ready to come in with all their strength and influence and authority to ensure that the Government shall not be defeated, and that is precisely what has emerged this afternoon. The noble Lord, Lord Aberdare, whose integrity is beyond question —I said his integrity is beyond question because of what I am about to say—told the House frankly, and with the utmost candour and honesty, as one would expect from him, that he happens to have an interest in this matter as a director of an insurance company. I should have thought that anybody who is a director of an insurance company should have kept out of this discussion.

Lord ABERDARE

My Lords, I should not like the noble Lord to go wrong. I happen to be the only one so far who has declared his interest.

Lord SHINWELL

My Lords, that is perfectly true, but it makes the matter even more serious. There may be others who have interests to declare but who have hitherto not declared them. In the circumstances, I realise that it is purely a personal issue so far as I am concerned. But I want an assurance from my noble friend, for whom, as he knows, I have a great regard indeed, that at some stage in the future I am not, because of some misdemeanour, some fault on the part of some insurance company, going to be levied. On that assurance I will vote with the Government; without that assurance, I will vote against them.

3.48 p.m.

Lord HOUGHTON of SOWERBY

My Lords, I have been hoping for some advice from the Benches opposite. I have heard that there are literally dozens of directors of insurance companies on the Benches opposite. Why are they not saying something? I notice the noble Viscount. Lord Harcourt, and he is known to be a distinguished director of an insurance company; I believe I have a policy with that company. Where are the others, and what are they saying to help those of us who are in difficulties about these Amendments?

The Bill may have been made better by many of the Amendments introduced by the Government, but the method of dealing with the Bill is certainly no better than I expected and, indeed, is quite a lot worse. When we had the Second Reading the only voices in support of the Bill came from the Government Front Bench—nowhere else. It was clear that, to be acceptable to both sides of this House, the Bill had to be radically changed. Indeed, it had to be reconstructed, because the principle in the original Bill was one which did not commend itself to your Lordships without considerable modification.

We recently had a Committee stage of the Bill. Long Amendments were put down by my noble friend Lord Peddle and other noble Lords, explanations were given, the Minister replied and there was little other debate. The Amendments were withdrawn one after the other. I made a facetious comment at the time that never had more Amendments been withdrawn by one noble Lord than on that afternoon. Yet here we are at the Report stage. Only two Amendments were carried during the Committee stage and now we have this long assortment of changes proposed by the Government, accompanied by additional Amendments from my noble friend Lord Peddie. How on earth your Lordships can do business under these conditions, I do not know!

I thought that my own was the most sensible proposal made on Second Reading. That was to send the Bill to a Select Committee where we could take evidence and hear the arguments and examine more closely the complexity of this matter. We are dealing with one of the most important industries in the land, one which is holding astronomical sums on behalf of policeholders in this country and all over the world. Britain may not be the centre of much else today, but it is the centre of the insurance industry. I think we are dealing with this Bill in a most shameful way. If I may respectfully say so, this is not the way to put legislation together—not without a great deal more time and a great deal more attention than it is possible to give to a Bill at the Report stage. I think that those of us who have recently come to this House feel considerable dismay at the way in which legislation is dealt with here—legislation which we were led to believe was going through the hands of an expert revising Chamber. But it goes through an indolent Chamber, one which apparently cannot respond to the challenges which a complex Bill of this kind throws out.

We have a long way to go on this Bill. I do not wish to delay your Lordships more than a minute or two more but the issue before us, complex though it is, is whether we try in this Bill to insert preventive measures as well as curative measures, or rely on the regulations that the Government can make and, I believe, propose to make under the earlier legislation. We feel that to put a kind of safety net under the policyholders who are in the hands of unwise companies, doing nothing more for them than pick up the pieces after the collapse of an insurance company, is not a satisfactory protection for policyholders. There ought to be closer supervision over what the companies are doing before they come to a state of collapse. I think we are all agreed about that. The question is this: what supervision? How much of it? Shall it be riddled with bureaucracy and detail and a whole network of scrutiny, which might impede the reasonable dispatch of ordinary business or the launching of new policies? How close is this oversight to be? How can we be assured that the supervision will be adequate without being tiresome to whose who have to discharge their responsibilities in insurance companies?

My predisposition is the same as that of my noble friend Lord Peddie. I want to have some safeguards in this Bill, but I am prepared to forgo them if we can be satisfied that the purposes of these Amendments will be fully achieved by alternative means, such as by regulations. My noble friend the Minister has, I think, given a pretty firm assurance that the purposes of the Amendments will be achieved. The question that those of us who are laymen in regard to this complex matter would like to ask is this. Is that the opinion of this House? Is that the opinion of noble Lords present who are better able to bring their experience and judgment to bear than people like myself and my noble friend Lord Shinwell, who have no interest in this Bill except that of ordinary policyholders? I would say that if my noble friend Lord Shinwell still has a whole life policy then some insurance company is probably doing pretty well out of him. It may be his misfortune that he did not take out the right policy, but that is only a comment by the way. I am still waiting to hear whether there is any hope of getting the assurance which will enable me to ask my noble friend Lord Peddie to withdraw these Amendments—at least for the moment—and see whether there is anything further to be done with them before we finally dispose of the Bill in this House.

Lord DRUMALBYN

My Lords, before the noble Lord, Lord Peddie, adresses your Lorsdhips again, may I just ask this question? Perhaps I should preface it by saying that, while it may be true that we are dealing with one of the most important industries in the country, it is also true that we are dealing with this Amendment at this moment. The question is this. Will this Amendment do what the noble Lord, Lord Peddie, thinks it will do? Will it provide a safety net, and will the safety net be extremely cumbersome or have a great many holes in it?

I put this question to the noble Lord. Does he intend that the safety that he expects to be given by this Amendment will lie in the action of the Government? Is it the Secretary of State to whom the actuary is to send a certificate? Is it the Secretary of State who is to provide the safety? Will he look at the exact terms of the long-term policy, or whatever it is? If that is so, then obviously, as the noble Lord, Lord Houghton, has said, it will be a very cumbersome procedure. Or is he merely intending that the insurance company will give an assurance to the Government by having the actuarial certificate? If that is so, then a great deal will depend on the judgment of the actuary; and it is not only a matter of his actuarial judgment, because there are a lot of market considerations as well that he will have to take into account, as the noble Lord, Lord Beswick, said. It is crucial for us to see exactly what the Amendment is designed to achieve.

Viscount HAREOURT

My Lords, since the noble Lord, Lord Houghton, mentioned me by name in this context, I should like to declare myself as being strongly in support of what was said by the noble Lord, Lord Peddie, and by my noble friend Lord Aberdare. These three Amendments are, to my mind, unworkable, a clog on the whole insurance industry, unnecessary and in the wrong place. The place for these protective controls is in the regulations under the Insurance Act 1974, and not in this Bill. In this Bill, they would merely be a complication and an appalling clog on the smooth working of a very large industry. I beg the noble Lord, Lord Beswick, to withdraw these three Amendments in the light of the very firm assurance given by the noble Lord, Lord Beswick, that these matters will be dealt with under the Insurance Act 1974. That is a far-ranging, broad Act and it is the right place for this sort of protective clause, which is totally unrelated to the matters which are being dealt with in this Bill.

Lord HAWKE

My Lords, as the noble Lord, Lord Houghton, wants to hear from the directors of insurance companies, I should like to add two or three sentences. I refer to Amendment No. 3, the first subsection of which says that the actuary is required at the same time to, inform the company in writing of the nature of the changes in the investments of its long-term business which may affect the validity of his certificate … When one has an investment committee investing on behalf of an insurance company over a wide field, including gilt-edged, loans, property, equities and so on, how on earth can the actuary say in his certificate what may affect its validity? Noble Lords will all remember the case of Rolls-Royce, which was regarded almost as the Bank of England among equities. Could an actuary have foreseen that, somehow or another, the board and the Government between them would bankrupt Rolls-Royce? This would require the actuary to be a seer or a soothsayer. It is absolutely impracticable.

There is another point in Amendment No. 2 to the effect that the actuary must constantly keep up a species of miming commentary. An insurance company will be in and out of the investment market all the time. It will have transactions in the gilt-edged market every day, buying and selling shares. Has the actuary to be consulted every time before a split-second decision is taken; for instance, to take a profit of a quarter of a point on £1 million of gilt-edged stock? The intention is worthy, but I am afraid that the Amendments are impracticable.

Lord ROBBINS

My Lords, may I say that I have no interest at all to declare except that, as a very young man, I took out an extremely small insurance on my life on which I have continued—perhaps foolishly—to pay the premiums until my present advanced age. I entirely sympathise with what has been said by the noble Viscount, Lord Harcourt, and by the noble Lord, Lord Hawke. I agree that these Amendments involve complications which would make them almost intolerable to carry out. However, I must also say that I completely agree—and I am glad to be in a position to do so for once—with the noble Lord, Lord Shinwell. I think the Bill rests on an entirely wrong principle, which is that the well-managed and prudent insurance companies are to suffer a levy to redeem the mistakes of the ill-managed and imprudent. If that principle is to be carried out throughout the industry and finance of this country, then I have no further hope.

Lord THOMAS

My Lords, as one of those who have been invited by the noble Lord, Lord Houghton, to declare an interest as a director of an insurance company, may I say that I wholly support what has been said by the noble Viscount, Lord Harcourt, and the noble Lord, Lord Robbins. I hope that the Amendment will be withdrawn.

Lord PEDDIE

My Lords, I believe that I make my comments at this point by leave of the House. I shall take the opportunity of replying to one or two points and of making some comments on the change of mind on the part of some noble Lords opposite. I shall also venture some speculation as to the possible reasons for that change of mind.

My noble friend Lord Beswick has, in commenting on the Amendments, once again indicated that they are outside the scope of the Bill. I realised that that would be said again and I took the trouble of looking up Erskine May and I see quite clearly in the Parliamentary Bible that, Amendments are not necessarily limited by the Title of the Bill, since a Committee is empowered to make Amendments relative to the subject matter of the Bill, provided that, where such Amendments are outside the Title, the Committee extends the Title so as to cover them. I hope, therefore, that the attitude of noble Lords will not be influenced by the fact that the subject matter of the Amendments is outside the Bill.

One or two noble Lords have made the comment that this will be cumbersome, difficult and so on. May I say in the most forceful manner possible that that is utter and complete nonsense. Also, if those views were held, they should have been stated much earlier and not in response to the very right challenge issued by my noble friend Lord Houghton. It may be that some people will not want these provisions because they want no interference with management; it is quite likely. I can see that these provisions will be most unacceptable to quite a large number of companies, companies which are concerned with immediate profit and not with the policyholders as is my noble friend Lord Shinwell. I see that they would feel a measure of restraint if an actuary had to give a certificate to support a certain line of action. Is that difficult? Where is the difficulty?

We have already heard my noble friend Lord Beswick say that the Government support the principle and we had a long statement about the sort of things the Department has in mind, what it has been doing and what it intends to do. None of those comments was made on Second Reading or at the Committee stage but, somehow or another and in a most confused way, all sorts of isolated suggestions have been put forward as offering the same type of protection as the Amendments offer. I suggest that there is no such protection. Why did it not operate in the case of the recent collapse of Nation Life and London Indemnity? Why did all these protective actions by Government not operate in those circumstances?

It has been suggested that there should be a quarterly report. The principle of an actuarial statement is already accepted by the Government. Where lies the difference? I have tried to put this in clear and concise terms and to answer the points made by the noble Lords, Lord Hawke and Lord Drumalbyn, and also to do something to meet the point made by my noble friend Lord Shinwell. We already have the principle, which is accepted and stated by the Government, that they feel the necessity for an actuarial statement to endorse the action of management in the conduct of an insurance company. They have stated that and agreed to it, but it is a quarterly report.

My noble friends and I feel—and I am sure that every Member of this House will agree—that a quarterly report is ideal for an inquest but we are anxious that these companies do not reach the grave, with the policyholders losing in consequence. Therefore, we say that it is as simple as this—and if anyone objects to the wording it can be changed—that every company has an expert actuary who is basically responsible for determining the policy conditions and so on. There is no compulsion in law at the present moment for that company to conduct its affairs in line with the strict professional standards laid down by the actuary. We have companies today—and some of them have gone broke—which were offering a surrender value that was utterly ridiculous. No actuary in his right senses would ever have given a certificate to endorse it. There are companies which went into various kinds of investment and no actuary in his right senses would have endorsed them. It has been suggested that this would mean over-control, but the contrary is the case. This would mean less control in Government terms. It simply means that the expert in the company will have knowledge and will be capable of reporting to that company, highlighting the changes which could be detrimental to the operations of that company.

I am utterly at a loss to understand how any noble Lord opposite can say that this will mean too much intervention. I am amazed at the change of heart on the part of the noble Lord, Lord Aberdare—perhaps I should say "change of mind", because all sorts of things that may affect the mind do not affect the heart—who said that he is quite anxious that we should have some means of increasing and strengthening the protection but that the actuaries are not happy. I have already said that the President of the Institute of Actuaries has indicated that the actuaries are prepared to consider positive proposals for strengthening the preventive legislation. If he said that as recently as a few days ago, how on earth can it be said from the Front Bench that the Institute of Actuaries is in complete agreement that the present legislation is adequate to deal with the situation? According to what their President has said, that is not so, and in consequence one can discard the comments that have been made by the Minister in that regard.

Lord HAWKE

My Lords, would the noble Lord explain exactly what he means by the phrase in Amendment No. 3 to which I referred because I cannot see how any actuary could possibly conform to it? It says that the actuary … shall … inform the company in writing of the nature of the changes in the investments of its long term business which may affect the validity …". "May affect" is something in the future. Does the noble Lord mean that the actuary must get a certificate and send it to the company saying, "If you change any of these investments it may affect the validity of my certificate," or does he mean that the actuary has to be informed when a change takes place and he will say what will be the effect of it?

Lord PEDDIE

My Lords, professional advice must obviously come within the range of "may be". If he were to say it with absolute certainty, then the action of the company or the management would be brought almost within the criminal category, but they could be making decisions which, in his opinion, may affect the stability of that company, and then it is up to management to decide. Thus, it is indeed crystal clear that all that that means is that whenever changes take place in regard to surrender value, large-scale investments, offers made to policyholders and so on—all those things that can affect the operations of an insurance company —they should be subject to the scrutiny of the actuary.

I conclude on the simple note that this is what the actuarial profession is all about, and therefore if it is suggested that this is going to be an over-interference, then I say it may be, but what are we here for? We are here to consider the question of the protection of the policyholder, and I speak as one who has no interest in insurance companies except as a policyholder. I therefore urge noble Lords not to be diverted by the sort of comments we have heard. These are simple Amendments which simply call on actuaries to perform in greater detail their responsibilities not only to the company but, through the company, to the policyholder, about whom we are very much concerned today. I therefore feel that my noble friends and I cannot accept the vague, almost woolly, assurances that have been given, when here in clear and precise terms it is possible in the most simple sort of way to give a measure of protection to the policyholder.

Lord BESWICK

My Lords, with the leave of the House I will answer some questions that have been put to me. My noble friend Lord Peddie has again quoted the President of the Institute of Actuaries in support of his Amendment. I quote again from the letter of 24th May in The Economist in which the President said in reply to the chairman of the Cooperative Insurance Society: Mr. Toogoode advocates removing major areas of responsibility for the management of life insurance companies from the directors to the actuary. I consider this wrong in principle and impracticable in operation. It may well be the case that the President of the Institute of Actuaries has said that he is prepared to consider further measures for the strengthening of control of insurance companies, and of course that is being done. I said in my opening speech that consultation is now taking place with the insurance industry about the further regulations that it is proposed to lay under the 1974 Act. My noble friend Lord Houghton of Sowerby wanted an assurance that the substance of what my noble friend Lord Peddie is seeking is achieved by other methods, and he invited comment from across the Floor of the House. I hope that the comment he had was acceptable to him, and I strengthen what has been said by pointing out that the 1974 Act, the regulations that have been, and the regulations that will be laid under it, plus the strengthening of the guidelines issued to the actuaries, will have the effect of giving all the control which my noble friend Lord Peddie is seeking.

I was asked by my noble friend Lord Shinwell to answer a simple question. He asked whether he will or will not be levied. His question reminded me rather of a question that was once put to an American Secretary of State for Defence who was asked whether a particular weapon was or was not offensive, and the Secretary of State gave the reply, "It depends at which end of the barrel one is standing." I cannot give my noble friend an absolute guarantee that the company with which he is insured will not be levied. I do give him a guarantee, however, that if in future the company with which he is insured gets into difficulty, the others will stand by him by way of levy and, after all, this is the essence of the insurance business. It is quite likely that if my noble friend's house is burnt down the premium which I have paid will go towards recouping him for his

loss. That is insurance. However, it would be quite absurd for me to ask for a guarantee that never in any circumstances will my premium be used to pay or repay any loss that he may suffer.

I was asked again about the importance of prevention. I absolutely agree that prevention is more important than ultimate protection. I think it is a little unfair to be twitted on that now simply because the Bill dealing with prevention was accepted by this House before the present Bill. That is the proper order of priorities, and under that Bill there is provision for the regulations which I have assured the House will be forthcoming. My noble friend Lord Peddie said that there was no control at all along the lines being suggested in the present Bill, but that is quite untrue. There is control; control is specifically there in the 1974 Act, in the regulations. The actuary has to submit a certificate quarterly, guaranteeing that certain requirements are met and I should have thought that this goes pretty well all the way to meeting what my noble friend is after.

4.19 p.m.

On Question, Whether the said Amendments (Nos. 1, 2 and 3) shall be agreed to?

Their Lordships divided: Contents, 11: Not-Contents, 120.

CONTENTS
Allen of Fallowfield, L.	Mais, L.	Rusholme, L.
Bacon, B.	Maybray-King, L.	Shinwell, L.
Brockway, L.	Pannell, L.	Wynne-Jones, L.
Fisher of Rednal, B. [Teller.]	Peddie, L. [Teller.]
NOT-CONTENTS
Aberdare, L.	Buckinghamshire, E.	Fraser of Kilmorack, L.
Adcane, L.	Byers, L.	Gainford, L.
Airedale, L.	Carrington, L.	Gaitskell, B.
Aldenham, L.	Champion, L.	Geddes of Epsom, L.
Alport, L.	Clifford of Chudleigh, L.	Glasgow, E.
Amherst, E.	Clitheroe, L.	Gordon-Walker, L.
Amulree, L.	Collison, L.	Gore-Booth, L.
Arran, E.	Cottesloe, L.	Gridley, L.
Auckland, L.	Cowley, E.	Grimston of Westbury, L.
Balfour of Inchrye, L.	Crathorne, L.	Hailsham of Saint Marylebone, L.
Balniel, L.	Cromartie, E.
Balogh, L	Daventry, V.	Harcourt, V.
Banks, L.	de Clifford, L.	Harris of Greenwich, L.
Barrington, V.	Denham, L.	Hawke, L.
Belstead, L.	Derwent, L.	Henderson, L.
Berkeley, B.	Drumalbyn, L.	Hornsby-Smith. B.
Beswick, L.	Effingham, E.	Hylton-Foster, B
Birk, B.	Elles, B.	Jacques, L. [Teller.]
Bledisloe, V.	Emmet of Amberley, B.	Jessel, L.
Blyton, L.	Erskine of Rerrick, L.	Kilbracken, L.
Killearn, L.	Onslow, E.	Strange, L.
Lauderdale, E.	Paget of Northampton, L.	Strathcona and Mount Royal, L.
Leatherland, L.	Pargiter, L.
Lee of Newton, L.	Platt, L.	Strathspey, L.
Llewelyn-Davies of Hastoe, B.	Popplewell, L.	Sudeley, L.
Lloyd of Hampstead, I..	forritt, L.	Summerskill, B.
Lloyd of Kilgerran, L.	Pankeillour. L.	Taylor of Mansfield, L.
Long, V.	Rathcavan, L.	Thomas, L.
Loudoun, C.	Reigate, L.	Vickers, B.
Lovell-Davis, L.	Ritchie-Calder, L.	Vivian, L.
Lyell, L.	Ruthven of Freeland, Ly.	Wakefield of Kendal, L.
Lyons of Brighton, L.	Sackville, L.	Wallace of Croslany, L.
McLeavy, L.	St. Just, L.	Ward of North Tyneside, B.
Macleod of Borve, B.	Sandford, L.	Wells-Pestell, L.
Mancroft, L.	Seear, B.	Wigg, L.
Mansfield, E.	Segal, L.	Wigoder, L.
Melchett, L. [Teller.]	Sempill, Ly.	Winterbottom, L.
Mowbray and Stourton, L.	Snow, L.	Wise, L.
Northchurch, B.	Stewart of Alvechurch, B.	Wootton of Abinger, B.
Nugent of Guildford, L.	Stow Hill, L.	Young, B.
Ogmore, L.	Strabolgi, L.

On Question, Amendment agreed to.

Resolved in the negative, and Amendments disagreed to accordingly.

Clause 1 [The Policyholders Protection Board]:

4.30 p.m.

Lord BESWICK moved Amendment No. 4: Page 2, line 2, at end insert ("and section (Companies in financial difficulties: transfers of business, etc.)")

The noble Lord said: My Lords, I propose, with the agreement of the House, that with this Amendment we speak to Amendments Nos. 62, 75, 85, 86, 87, 88, 103 and 104. I hope that my noble friends are making a careful note of these as I should not like to have the argument again when we reach those Amendments. These Amendments are all concerned with the new clause to replace the old Clause 16. That clause deals with the Board's power which we deleted in the Committee stage to secure the continuance of an insurance company's business. The clause has been substantially redrafted. It is intended to meet the criticisms expressed at that time, and I hope that the revised clause will be acceptable to noble Lords.

May I refer in some detail to the main changes from the previous clause? The clause will no longer come into operation on a reference by the Secretary of State, but it will in any one of the following cases (listed in subsection (1)): (a) if a provisional liquidator has been appointed; (b) if an insurance company has been proved, in proceedings on a petition for winding up under the Companies Acts, to be unable to pay its debts; or (c) if an application has been made to the courts under the relevant provision of the Companies Acts for the sanctioning of a compromise or arrangement between the company and its creditors involving a reduction of benefit under policies. When we discussed this matter on Committee stage all manner of possibilities were advanced by noble Lords (none of whom I see in the Chamber now) as to what might "trigger off" the reference by the Secretary of State. They feared undue pressure from constituencies, and so on. The general apprehension was that the Board might find themselves under irresistible pressure to effect a rescue. I hope that these alternative "triggers" will provide an objective indication that a company is in difficulties, and I understand these "triggers" have the agreement of the industry.

Secondly, we have written into the clause in subsection (8) the proviso that the Board may not exercise their powers to arrange for the rescue of a company where it appears to them that it would cost less (that is, that the call on the levies would be smaller) to allow the company to go into liquidation and to protect policyholders under Clauses 6 to 11. I was hoping that my noble friend Lord Houghton of Sowerby would be here because I wanted to say that his views expressed at Committee stage on this particular matter were taken into account. We had assumed that in any case the Board would have regard to this factor and, if they wished, the Secretary of State would issue guidance to this effect. I accept it is probably more satisfactory to have the point spelt out unequivocally in the Bill.

A further change is that the restriction on benefit to shareholders and persons involved in the circumstances giving rise to the company's need for assistance has been tightened (this is dealt with in subsection (6)). The restriction now applies to any assistance given by the Board under this clause, whether direct to the company in difficulties or to another company to enable it to receive a transfer of business. The Board will be debarred from using their powers under this clause in any case where it seems to them that shareholders of the company in difficulties, or, persons who had any responsibility for or who may have profited from the circumstances giving rise to the company's financial difficulties", would benefit materially from the Board's intervention.

The other feature of the new clause which appears to differ substantially from the old wording is the final subsection (9). This change is, however, purely one of drafting consequent upon the abandonment of the phrase "protected policyholder" in earlier parts of the Bill. There is no change at all of substance. I hope that in view of the extensive revisions we have undertaken the House will feel able to support the new clause. As I explained in Committee, we regard provisions of this sort as an essential feature of the protection scheme, since it may sometimes be in the interests both of policyholders and of the industry as a whole to rescue a company rather than allow it to go into liquidation. I understand, indeed, that the insurance industry, particularly the life side, have come round to this view, since they agree that it is important for life policyholders, where possible, to be provided with continued cover at a reduced level. It may well be easier to achieve this by keeping a company in being rather than allowing it to go into liquidation and then seeking to arrange a transfer of business or the issue of substitute policies. With that explanation, I hope we shall be able to agree to Amendment No. 4, which is the paving Amendment to the new clause which we shall come to later.

4.37 p.m.

Lord ABERDARE

My Lords, the House will be grateful for that explanation of the new clause, which is really what we are discussing on this paving Amendment. When we were considering the old Clause 16 which was removed at Committee stage, the situation was that the Secretary of State would have been able to identify a company at risk and refer it to the Board. The Board would have been able to rescue that company, either by transferring its business to another company or by using levy funds to keep the company in business. It was our view at the Committee stage that this might well result in automatic rescues and the use of levy funds to support badly managed companies. Now we have an entirely new clause, and I welcome the Government's initiative in putting this in. I believe it goes a long way to meet our criticisms.

In the first place, the Secretary of State has disappeared from the scene. Instead, the clause operates only if the company is in provisional liquidation. That is the first big improvement which has been made by this Amendment. In the second place, the noble Lord has already drawn our attention to the new subsection (8), which allows the Board to rescue a company in financial difficulties only if it appears to them that to do so would not cost more than to protect the policyholders as provided in the other clauses of the Bill or to allow the company to go into liquidation. In my view the new clause is acceptable, and I say that for two reasons. The first is that it is up to the Board to make the decision. The wording is, "the Board may exercise any power"; there is no reason why they should do so. It is a permissive clause, and the Board, of whom the majority come from the insurance industry, can make the crucial decision.

Therefore, this is a safeguard which is of enormous importance. It will allow the benefits, which the noble Lord has rightly said can be brought about by allowing a fund to continue in operation, to be received; but the fact that the Board have a permissive power means that this will not happen in all cases where perhaps it would not be to the general advantage. The second reason why I think that the clause is acceptable is because of subsection (8). If we were not to accept this clause, it would mean that in every case the company would go into liquidation—and that would mean greater cost to the levy than if it were kept in being.

For those two reasons, I personally believe that this is a sensible clause; that the modifications which have been made are satisfactory and that your Lordships should agree to its inclusion. However, I recognise that some of the Life Offices feel that there are difficulties about it. These are highlighted in the Amendment of the noble Lord, Lord Peddie—Amendment No. 62A—in particular the possibility that policyholders may receive more than 90 per cent. of their benefits as a result of a rescue operation and, secondly, that a company which is offering excessive benefits might be rescued and its policyholders continue to receive excessive benefits at the expense of policyholders in conservative and old-established companies.

I have some sympathy with those points of the noble Lord, Lord Peddie, especially with his second point regarding excessive benefits. On the other hand, one has to recognise that this is a permissive power of the Board. If the company concerned were offering excessive benefits, presumably there would be no need for the Board to offer any rescue provisions and they would allow the company to go into liquidation. Again, therefore, that safeguard remains. I see that the noble Lord, Lord Peddie, has left the Chamber. When we come to his Amendment perhaps we shall discuss it in greater detail, but for the moment I am perfectly content to see this clause incorporated in the Bill.

Lord WINTERBOTTOM moved Amendment No. 5: Page 2, line 18, at beginning insert ("Subject to subsection (3A) below").

The noble Lord said: My Lords, with the permission of the House, I should like to speak to Amendments Nos. 5 and 6 together. As noble Lords will remember, the purpose of these two Amendments is to place a limit of £10 million on the aggregate borrowings of the Board. At Committee stage an. undertaking was given to my noble friend Lord Peddie that the Government would propose a borrowing limit on Report.

The Board's main source of income will be the levies. The purpose of the borrowing power is to enable the Board to provide themselves with funds when recourse to the levy is impossible— for example, before 1st April 1976, or later if their requirements temporarily exceed the product of the maximum levy permitted—or if it should be inconvenient, for instance, when their immediate requirements are so small that a levy on all companies would be unduly cumbersome. If the Board had no power to borrow money, they would almost certainly face considerable administrative inconvenience, and policyholders might possibly experience temporary hardship while waiting for payment out of some levy.

The figure of £10 million was chosen with regard to the total amount that the levies could produce in the first year of operation. This is estimated at about £24 million for general business and long-term business together. However, this seemed to the Government unduly large for an initial limit and the figure settled upon and proposed in this Amendment is £10 million. This is a figure which we believe is likely to prove sufficient for both the immediate and the longer-term needs of the Board. The figure has been discussed with the British Insurance Association which makes no objection to it. I beg to move.

Lord DRUMALBYN

My Lords, the noble Lord, Lord Beswick, was good enough to write to me on a cognate subject. Supposing that there are no claims, which would mean that a levy would never be required to be made, the Board would go on borrowing simply to remain in existence. It seems very odd to set up a Board which ticks over on borrowed money until something happens. And if it never happens, then it ticks on for ever.

Lord WINTERBOTTOM

My Lords, certainly this is an interesting thought! I assumed that this had been covered at some other position in the Bill, but at such short notice I cannot remember whether it is. As I understand it, the Board are paid expenses, et cetera only if they are functioning. If there is no crisis there is no work and, therefore, no expense; and presumably no borrowing power is required. However, I am speaking from memory and am subject to correction, and if the noble Lord, Lord Drumalbyn, can be more precise than I can be I shall be grateful.

Lord WINTERBOTTOM

My Lords, I beg to move Amendment No. 6.

Amendment moved—

Page 2, line 20, at end insert: ("(3A) The aggregate amount outstanding in respect of the principal of any money borrowed by the Board under subsection (3) above shall not exceed £10 million.")—[Lord Winterbottom.)

4.45 p.m.

Lord BESWICK moved Amendment No. 7: Page 2, line 25, after second ("time") insert ("after consultation with the Board").

The noble Lord said: My Lords, a number of criticisms were made in Committee of the power given to the Secretary of State in this clause to give guidance to the Policyholders Protection Board. After consideration of the points made, the Government remain of the view that the clause is a useful and desirable part of the Bill. As we pointed out at Committee stage, the Bill leaves the Board scope for discretion in certain areas, and it could prove helpful, for the Board at least as much as for the Government, that they should be able to receive guidance as to the performance of their functions. It is true that the discretionary element in the Board's powers has been reduced by various Amendments. but there remain areas in which the Board will have some discretion and where guidance could, in the light of experience, prove valuable to them, particularly if they were seeking support for their general approach to the exercise of their powers. I would say, incidentally, that the guidance could be of only a general nature; the term could not be interpreted to cover guidance on individual cases.

I should say to the noble Lord, Lord Drumalbyn, that the £10 million that was worrying him will, of course, be invested. If things tick over without a levy, I should think everyone will be happy and the money will not be wasted; when it comes to a winding up, if at all, there should be quite a nice little kitty. The use of the Board's borrowing powers may be a matter on which there could usefully be guidance—also the use of their powers to give interim assistance to policyholders of companies in financial difficulties under Clause 15.

Having said that, I recognise that the clause has caused some concern. I was particularly impressed by what the noble Earl, Lord Balfour, had to say, and I undertook in Committee to consider whether it might be possible to amend the clause. I have emphasised that we see the position as being of some benefit to the Board, and to make our intentions quite explicit we now propose to include a provision requiring the Secretary of State to consult the Board before giving them any guidance on any topic. Guidance will thus only be issued in the full knowledge of the Board's views. Similarly, the Board will be fully apprised of the Secretary of State's ideas before any guidance can be issued. I hope that with this Amendment, together with the more explicit definition of the Board's powers in certain other parts of the Bill, this clause will be acceptable to the House.

Lord BALFOUR of INCHRYE

My Lords, I am grateful to the Minister for meeting the point that I made.

Lord ABERDARE

My Lords, the matter we were worried about at Committee stage was in general the wide powers of the Secretary of State, especially, as my noble friend Lord Balfour has said, on Clause 2, coupled with the sweeping powers in Clause 14, and we are glad to see that the Government have tabled an Amendment to take out Clause 14. The introduction in Clause 2 of consultation with the Board is helpful, coupled with the assurances that the guidance will be general. Therefore, the position now will be that before the Secretary of State gives the general guidance he will have to consult the Board (and again it is worth remembering that the Board have a majority of members from the insurance industry) and then, having consulted the Board, he has to get an affirmative approach from both Houses of Parliament. So if the Board should raise any objections when they are consulted their views will undoubtedly be well known to both Houses when such a Resolution comes before them. In the circumstances, I feel that the Government have gone all the way one could possibly expect them to go in modifying this clause, and I would advise your Lordships to accept it.

Lord REIGATE

My Lords, before we abandon discussion on this Amendment it seems to me that we have now made it almost an unnecessary clause. As I understand the position, the Secretary of State can give guidance, but first he must consult with the Board as to what guidance he will give them. Then he issues directions to them—presumably if they agree with the directions—and then it has to come before Parliament. I sincerely hope that this cumbersome engine will never need to be invoked: and as I should think it is almost impossible to use it at all it might just as well be abandoned.

Lord BESWICK

My Lords, I take the point made by the noble Lord, Lord Reigate, but I do not think he quite appreciates what I said about the help that there may be to the Board if a Government issue clearly a guidance which can be fully understood by the industry or by others. They would appreciate the general spirit and the general guidance under which the Board would be likely to operate in the future.

Lord REIGATE

My Lords, I accept that and I quite realise that no harm would be done by it.

Lord DRUMALBYN

My Lords, would it not also be of help to Parliament to know on what lines the Board will act if the guidance is given and laid before Parliament?

Clause 4 [Protected policies and protected policyholders]:

4.54 p.m.

Lord BESWICK moved Amendment No. 8:

Leave out Clause 4 and insert the following new clause:

"Protection confined to United Kingdom policies

.—(1) A policyholder is eligible for the assistance or protection of the Board in accordance with any provision of sections 6 to 15 and section (Companies in financial difficulties: transfers of business, etc.) below only in respect of a policy of insurance which was a United Kingdom policy for the purposes of this Act at the material time for the purposes of the provision in question.

(2) A policy of insurance is a United Kingdom policy for the purposes of this Act at any time when the performance by the insurer of any of his obligations under the contract evidenced by the policy would constitute the carrying on by the insurer of insurance business of any class in the United Kingdom."

The noble Lord said: My Lords, I have a feeling that some of my noble friends behind me are missing something, because with Amendment No. 8 I propose, with the leave of the House, to speak to Amendments 9, 10, 11, 17, 19, 21, 23, 24, 25, 26, 27, 29, 34, 36, 57, 58, 59, 60, 61, 65, 67, 70, 71, 93, 94, 95 and 96.

Lord HAWKE

My Lords, will the noble Lord read those out again? He spoke too fast.

Lord BESWICK

As the right honourable gentleman Mr. Macmillan once said, "I am only a once-nightly performer". Is the noble Lord really serious?

Lord HAWKE

No, my Lords, it will be all right.

Lord BESWICK

My Lords, in the light of the views expressed at Committee stage, the Government undertook to look at Clause 4 and the two subsections which define the policies in respect of which policyholders would be eligible for protection under the Bill, because some feeling was expressed during the Committee stage that the original definition was too wide. These Amendments reflect our endeavours to get agreement on a new form of words. In the light of the views expressed in Committee, the Government have had further discussions with the industry. We recognised that the original definition relating to policies, "made in the United Kingdom" and policies involving at least one premium payable in the United Kingdom, was not entirely satisfactory, and the new definition contained in the proposed new clause to replace Clause 4 was worked out in agreement with the industry.

Subsection (1) of the new clause defines policyholders eligible for protection under the Bill in terms of policies that are "United Kingdom policies" (as defined) at the material time. Subsection (2) provides that a policy is a "United Kingdom policy" for the purposes of the Bill at any time when the performance by the insurer of any of his obligations under it would constitute the carrying on of insurance business of any class in the United Kingdom". This wording reflects the wording used in the Insurance Companies Act 1974 defining the classes of insurance business for the carrying on of which an insurer requires authorisation under the Act. The definition no longer looks back to where the contract of insurance was originally made, perhaps many years ago, or to where any one premium may at some time have been paid; instead it has regard to whether at the material time—that is, at the time of the recording of the premium income in the company's accounts in the case of the levy, or the time of the beginning of the liquidation in the case of the duties to protect policyholders under Clauses 6 to 11—the company would require an authorisation under United Kingdom insurance legislation to perform its obligations under the policy.

The Government are persuaded—and I think this time they have carried the industry with them—that this is a more realistic and satisfactory way of defining eligible policyholders. However, because the old term "protected policies" has now been replaced by the term "United Kingdom policies" and because under the definition a policy may now change during its life from being a United Kingdom policy for the purposes of the Bill to not being one, and vice versa, a large number of consequential changes to following clauses have been necessary. These include some rearrangement of Clause 15 as well as smaller amendments to Clauses 6, 8 to 11, 16 and 24. None of these Amendments changes the substance of the clauses in question except to the extent necessary to carry out this new definition.

It will have been noticed that in proposing the deletion of the old Clause 4 we are also sweeping away the exclusion from the Bill of marine, aviation and transport insurance and of reinsurance business in old Clause 4(4). However, the exclusion of MAT insurance and reinsurance business in the general field—and I know that the noble Lord, Lord Aberdare, is interested in this point and spotted the apparent difficulty—is restored by Amendment No. 23 to Clause 8; and Amendment No. 27 to Clause 10 restores the exclusion of long-term reinsurance business. Replacement of the old Clause 4 also has the effect of deleting the Secretary of State's power in subsection (5) of that clause to bring MAT insurance and reinsurance within the scope of the Bill by order. This, along with other order-making powers, was criticised in Committee by the noble Lord, Lord Balfour, and I am sorry that the noble Lord, Lord Aldington, is not here because he castigated the Government, if not myself, very strongly about it. I hope it will be agreed that what we have decided will go a long way to meet what was said by the noble Lord, Lord Aberdare, and his noble friends. In view of these changes I hope all these Amendments will be acceptable. I beg to move Amendment No. 8.

Lord BELSTEAD

My Lords, as drafted, the Bill made the payment of only one premium by the person insured the yardstick for inclusion within the scope of the Bill, and as the noble Lord, Lord Beswick, has said, reservations were expressed from various parts of the House that this made the scope of the Bill wider than presumably anyone had intended. I should have thought that it was more satisfactory to make the activity of the insurer the yardstick by using the wording of the 1974 Act, and as this is the effect of Amendment No. 8 I certainly accept it and thank the Government for bringing it forward. At the same time, apart from the consequential Amendments, the noble Lord spoke to Amendments Nos. 23 and 27 which deal with marine, aviation and transport insurance. Here, again, the Government are meeting what I think were broadly two points raised by noble Lords in Committee.

The first was that MAT ought not to be included in the Bill at all; and secondly, that certainly an order-making power to bring MAT within the scope of the Bill would be wholly inappropriate for such a major step, affecting both MAT itself and also the position of private policyholders who would suddenly find this enormous wedge of insurance brought within the Bill. Noble Lord after noble Lord felt that if MAT and reinsurance were to be brought into the scope of the Bill it should be done by new legislation. Among other noble Lords, my noble friend Lord Aldington spoke with some conviction on this point and I should like to say to the Government that he has to be abroad and very much regrets that he cannot be here for this stage of the Bill. For those reasons, I also accept and thank the noble Lord for bringing forward Amendments Nos. 23 and 27.

Lord BALFOUR of INCHRYE

My Lords, I, too, should like to thank the noble Lord. In life one never gets everything one wants but the noble Lord has given us most of what we want and I am grateful.

Lord HAWKE

My Lords, failing the other Amendment which we agreed with, this lessens our apprehension about the length of the proceedings.

Lord BESWICK

My Lords, together with Amendment No. 8 we will include Nos. 9 and 10 and, in addition, I have covered Amendments Nos. 11, 17, 19, 21, 23, 24, 25, 26, 27, 29, 34, 36, 57, 58, 59, 60, 61, 65, 67, 70, 71, 93, 94, 95 and 96. I apologise for putting all these together, but it will be appreciated that it was a term which ran right through the Bill. I therefore beg to move.

Clause 6 [Compulsory insurance policies and societies]:

Lord BESWICK

My Lords, I beg to move Amendments Nos. 9, 10 and 11.

Amendments moved—

Page 4, line 37, leave out ("protected")

Page 5, line 7, leave out ("protected")

Page 5, line 12, leave out paragraph (a)—(Lord Beswick.)

5.4 p.m.

Lord WINTERBOTTOM moved Amendment No. 12: Page 5, line 23, leave out ("subsection (5) below") and insert ("section (Exclusion and modification of duties of the Board where payments are made by other persons, etc.) below and the following provisions of this section.")

The noble Lord said: My Lords, I hope it will be of help to the House if I group a number of Amendments together. In order to fit the jig-saw puzzle together, may I say that the key Amendment is No. 55 which inserts a new clause after Clause 13. In the main, I shall be speaking on this new clause and the other Amendments are consequential to it. May I mention the Amendments which are linked with the key Amendment No. 55, which I am going to move together? These are Nos. 12, 14, 18, 20, 28, 32 and 50, and, as I said, No. 55 is the key Amendment. The new clause is a redrafting of subsections (2), (3), (4) and (5) of Clause 13 as it now stands, and Amendment No. 50 to Clause 13 provides for deletion of the subsections superseded by the new clause. I shall therefore concentrate my comments on the new clause.

The purpose of subsections (2) to (5) of Clause 13 was to guard against a policyholder receiving payment twice over in respect of the same liability, and this remains the only purpose of the new clause. Clause 13 was already something of an omnibus clause, and now that we are proposing to add further general provisions to it we thought it convenient to off-load subsections (2) to (5), dealing as they do with one distinct problem, into a separate clause. In transferring subsections (2), (3), (4) and (5) of Clause 13 into the new clause, we have extensively redrafted them. The original formulation proved to be deficient in certain respects. For instance, the original subsections (3) and (4) of Clause 13 do not relieve the Board of their duty when someone other than the Board secures the object specified in Clause 11(1) by arranging a partial or complete transfer or replacement of a protected policy—the same defect applies to the original subsection (5) of Clause 13—and we are not on reflection satisfied that the provisions in subsection (3) regarding the order in which sums received from third parties are to be applied will always operate fairly for the policyholder. The new clause attempts to remedy these deficiencies, though it does not alter the general principles and purpose of the original provisions.

Subsection (1) of the new clause is designed to prevent the Board's duties under Clauses 6, 7 and 8—which relate only to general insurance business—leading to double payments to policyholders or others. It relieves the Board of the duty to make or secure payments in so far as the prospective recipient has already received payments from the Board or from elsewhere in respect of the liability out of which the Board's duty has arisen. There are many channels by which someone entitled to the Board's protection in relation to a general business policy might receive payment; for example, from the Board under their discretionary power in Clause 15; from another United Kingdom protection scheme, such as the Motor Insurers' Bureau in respect of a compulsorily insurable Road Traffic Act liability; from a trust or other arrangement established for the benefit of policyholders in the event of liquidation; from an overseas policyholder's protection scheme; from the liquidator paying a dividend. These are all examples where a double payment might be drawn. In these and other cases it is clearly right to relieve the Board of any obligation to make double payments.

Subsections (2) to (5) of the new clause are designed similarly to prevent the Board's duties in respect of long term policies in Clauses 10 and 11 leading to double payments. The operative provisions are contained in subsections (4) and (5), subsections (2) and (3) being definitional. Subsection (4) relieves the Board entirely of the duty to assist a policyholder under Clauses 10 and 11 when it appears to them wholly inappropriate to do so in view of assistance or protection received by the policyholder from elsewhere. Subsection (5) deals with cases where the assistance received by the policyholder from elsewhere seems to the Board to make their own assistance only partially inappropriate; here the Board are entitled to reduce the scale of their own assistance to whatever level seems appropriate to them in the circumstances. Subsections (2) and (3) define the kinds of assistance and protection of which the Board is to take account in relation to subsections (4) and (5). The assistance from other sources with which these subsections are concerned could come to a policyholder, for example—from an overseas policyholder's protection scheme under which the policyholder was entitled to assistance in respect of the same liability; from a trust or other arrangement established for the benefit of policyholders in the event of liquidation; or from the liquidator paying a dividend. These are points I made earlier.

The purpose of subsection (6) is simply to ensure that any sums received by a policyholder from the Board under Clause 11(5) go to reduce any claim he may have to the Board's assistance under subsections (6) or (7) of Clause 11 in respect of the capital value of his policy in the winding up. Subsection (7) enables the Board to postpone taking action in fulfilment of their duties under Clauses 6 to 11 where it appears to them that, independently of any measures they may take, any other person—apart from the liquidator—may make a payment that would under subsections (1) to (5) of this new clause have justified a reduction of any sum they were to pay or secure. This, again, is directed against the possibility of the duties of the Board under the clauses quoted above leading to double payments, and ensures that the Board need not fulfil those duties until other sources of protection or compensation are exhausted. It is this subsection which, for the time being, releases the Board from the duty of protecting policyholders and others under Clause 6(4) and Clause 7 who are entitled to protection from the Motor Insurers' Bureau, thus allowing the MIB arrangements to continue undisturbed. It also releases the Board from their duties of protecting a person for as long as it appears to them that he may qualify for payments under an overseas protection scheme. Subsection (8) explains references in subsections (1) and (2)(a) of this clause to payments referable to a liability of a company in liquidation. Having said all that, I hope that the new clause as drafted, with the explanation I have given, will enable your Lordships to agree to it.

Lord LYELL

My Lords, I should like to thank the noble Lord, Lord Winterbottom, for the extremely clear way in which he set out this new clause. I must admit that I am a trifle baffled but I have made the best attempt I can to go through it. I was a little mystified by one or two of the definitions that the noble Lord gave. I did not see the word "definitional" in Clause 24. I think the word "definitive" might be better. We were discussing this point during the Committee stage, and it may be a question of mere drafting. However, we are grateful for the clarification given by the noble Lord. There were a number of points of doubt about double payments, and about whether policyholders could reclaim further benefits than were clearly intended by the Bill. So far as we can see, the very full new clause which has been presented to us removes almost all of these doubts. Therefore, we are grateful to the noble Lord, and wish to accept the Amendment.

5.15 p.m.

Lord BESWICK moved Amendment No. 13: Page 5, line 28, leave out ("or on behalf of")

The noble Lord said: My Lords, I beg to move Amendment No. 13, and I propose to take with it Amendments Nos. 15, 22, 30 and 49, if that is agreeable to your Lordships. If your Lordships will look at Clause 13, the substantive Amendment is to that clause. The new subsection (1) of Clause 13 elaborates the circumstances in which the Board may exercise their duties by securing the payment of sums to persons other than policyholders. It is a drafting Amendment designed to make the intention of the provision clearer; it does not represent any change of policy. The Amendments to Clauses 6, 8 and 10 are simply consequentials of the new Clause 13(1).

The new subsection (1) of Clause 13 applies where the Board are required to make payments under Clause 6, compulsory insurance policies; Clause 8, general policies other than compulsory insurance policies; Clause 10, payment of claims under long-term policies; and subsections (5), (6) and (7) of Clause 11, payments to holders of long-term policies arising after a liquidation. The new subsection makes it clear by virtue of paragraph (a) that where it appears to the Board that payment in respect of any sums falling due under a policy could have been made in accordance with the policy to a person other than the policyholder, the Board may secure payment in respect of such sums to that person, instead of to the policyholder. This allows, in particular, for payments direct to third parties to whom the policyholder is under a liability.

Furthermore, by virtue of paragraph (b) of the new subsection, where it appears to the Board that any sums paid under a policy would have been subject to any trust, charge or other agreement binding on the policyholder, the Board may secure payment in respect of such sums to the person appearing to them to be entitled under the trust, charge or agreement in question, instead of to the policyholder. This provision is designed to cover, for example, cases where the nominal policyholder is a trustee, and not the beneficiary under the policy; or where the policyholder may have deposited his policy with someone else as security for a loan, authorising the company to make payments under the policy to the creditor. In the Bill as originally drafted, there was some doubt as to whether the Board possessed the necessary flexibility, particularly under Clause 11, to deal with such cases. Any payment made by virtue of this subsection to any person other than the policyholder will be treated for the purposes of the provision in question as a payment to the policyholder; it may thus be made on such conditions, concerning assignment of the recipient's rights to the Board, as the Board think fit, in the same way as payments to policyholders.

The new subsection (1) of Clause 13 entails minor drafting changes and consequential Amendments to the first six lines of the old subsection (1). This has been done by making the old subsection (1) into subsection (1A) and including the redrafted passage at the end of Amendment No. 49. It also entails minor consequential Amendments to Clauses 6, 8 and 10. The purpose of these Amendments, taken together, is to make the drafting in general somewhat simpler. I can well imagine some eyebrows being raised about that, but I am assured that for those who have to work by it, it will in fact be more simple to understand. They remove any ambiguity there may have been as to the circumstances in which the Board could secure the payment of sums to a person other than the nominal policyholder. On that basis, I hope it will be agreed that we can accept Amendment No. 13, and subsequently take Amendments Nos. 15, 22, 30 and 49. I beg to move.

Lord LYELL

My Lords, we are once again grateful to the noble Lord, Lord Beswick, for clarifying these points. I think probably there was a certain amount of ambiguity so far as third parties were concerned, as to who should and who should not receive benefits from the Board. Although they may not appear to be simple, I think these Amendments clarify many of the points which were raised at Committee stage. I am instructed that these Amendments are of a drafting nature and that they do clarify the Bill, and we are glad to accept them.

Lord BESWICK

My Lords, we have dealt with Amendments Nos. 14 and 15. I beg to move.

Amendments moved—

Page 5, line 35, after ("13") insert ("and section (Exclusion and modification of duties of the Board where payments are made by other persons, etc.) and subsection (7A)")

Page 5, line 41, leave out ("or on behalf of")—(Lord Beswick.)

5.21 p.m.

Lord BESWICK moved Amendment No. 16: Page 6, leave out line 5 and insert ("all of whom are individuals")

The noble Lord said: My Lords, this is an Amendment designed to meet points that were made at Committee stage. Where insurance is not compulsory, protection under the Bill in the field of general business is confined to private policyholders as defined in Clause 6(7). Subsection (7) defines "private policyholder" as an individual or a partnership or unincorporated body containing at least one individual. In preparing this definition we had in mind the case of an individual member of a partnership or other incorporated body some of whose fellow members may be limited companies. Unlike his corporate fellow members he would have unlimited personal liability for his share of any claims that were made against the body, and if the body's insurance company were liquidated he could suffer hardship and merit the Board's protection as much as any other individual policyholder.

In Committee we accepted that the original wording was unsatisfactory in that it breached the principle that, except in compulsory insurance cases only individuals and not corporate bodies should be eligible for the Board's protection. We did not immediately accept the Amendment tabled by noble Lords opposite because we wanted to consider whether we could devise a formula that extended protection to individual members only in partnerships or other unincorporated bodies. Since this gave rise to legal complications, we have now decided to accept the original proposal. I hope, therefore, as it sprang from the other side, it will be acceptable to them on this occasion. beg to move.

Lord BELSTEAD

My Lords, this Amendment exactly repeats one which was moved from this side of the House. Although, like the Government, we realise that there is this reservation about the question of partnerships, as the Government have not been able to see their way round the point and neither indeed could we, I should like to thank the noble Lord for meeting the major point by bringing forward this Amendment.

Lord BESWICK

I beg to move Amendments Nos. 17 to 27.

Amendments moved—

Page 6, line 6, leave out subsection (8) and insert— ("(7A) The duty of the Board under subsection (4) or (6) above shall not apply—

1. (a) in the case of any policy, unless it was a United Kingdom policy at the beginning of the liquidation; or
2. (b) in the case of any security in respect of third-party risks, unless it would have been a United Kingdom policy at the beginning of the liquidation if it had been an insurance policy and the contract governing the security had been a contract of insurance.

(8) References hereafter in this Act to policies which were United Kingdom policies at any time and to policyholders in respect of such policies shall be construed as including references to—

1. (a) securities to which this section applies which would have been United Kingdom policies at the time in question if they had been insurance policies and the contracts governing the securities had been contracts of insurance; and
2. (b) security holders in respect of such securities").

Clause 7 [Third-party rights against insurance companies in road traffic cases]:

Page 6, line 13, after ("13") insert ("and section (Exclusion and modification of duties of the Board where payments are made by other persons, etc.)").

Clause 8 [General policies other than compulsory insurance policies]:

Page 6, line 26, leave out from ("any") to ("a") in line 28 and insert ("general policy other than").

Page 6, line 30, after ("13") insert ("and section (Exclusion and modification of duties of the Board where payments are made by other persons, etc.)").

Page 6, line 34, after ("applies") insert ("which was a United Kingdom policy at the beginning of the liquidation").

Page 6, line 34, leave out ("or on behalf of").

Page 6, line 38, at end insert—

("(4) In this Act "general policy" means any policy evidencing a contract the effecting of which constituted the carrying on of general business of any class, not being—

1. (a) a contract the effecting of which constituted the carrying on of marine, aviation and transport insurance business, or
2. (b) a contract of reinsurance.").

Clause 9 [Limits on the ditties of the Board under sections 6 to 8]:

Page 6, line 41, after ("policyholder") insert ("in respect of a policy of a company in liquidation which was a United Kingdom policy at the beginning of the liquidation").

Page 7, line 4, leave out from ("any") to first ("to") in line 5 and insert ("general policy which was a United Kingdom policy at the beginning of the first-mentioned company's liquidation").

Clause 10 [Long term policies]:

Page 7, line 16, leave out ("protected").

Page 7, line 18, at end insert ("not being a contract of reinsurance").—(Lord Beswick.)

Lord BESWICK

My Lords, we dealt with Amendment No. 28 with Amendment No. 12. I beg to move.

Amendment moved— Page 7, line 19, after ("13") insert ("and section (Exclusion and modification of duties of the Board where payments are made by other persons, etc.)").—(Lord Beswick.)

Lord BESWICK

My Lords, we have already dealt with Amendments Nos. 29 and 30. I beg to move.

Amendments moved—

Page 7, line 22, after ("policy") insert ("which was a United Kingdom policy at the beginning of the liquidation").

Page 7, line 23, leave out ("or on behalf of").—(Lord Beswick.)

Clause 11 [Special provision for future benefits under long term policies]:

Lord WINTERBOTTOM moved Amendment No. 31:

Page 7, ine 25, at beginning insert— ("( ) References hereafter in this section to relevant future benefits under any long term policy of a company in liquidation are references to sums which would have fallen due to be paid to the policyholder by the company in accordance with the terms of the policy if the company had not gone into liquidation.").

The noble Lord said: My Lords, with the agreement of the House, I should like to group together Amendments Nos. 31, 38, 40 and 41. These are simply drafting Amendments designed to simplify Clause 11 by substituting in subsections (1), (2) and (4) the expression "relevant future benefits" for the cumbersome phrase "sum which would have fallen due to be paid by the company … if the company had gone into liquidation" and parallel phrases. Amendment No. 31 introduces a new subsection at the beginning of the clause defining the expression "relevant future benefits" accordingly. The meaning of the clause and the duties of the Board under it are not affected in any way. I think your Lordships will agree that the short phrase "relevant future benefits" with its definition is superior to that which appeared In the original text, and for this reason I commend it to your Lordships. I beg to move.

Lord BESWICK

My Lords, we have already dealt with Amendment No. 32. I beg to move.

Amendment moved— Page 7, line 25, after ("13") insert ("and section (Exclusion and modification of duties of the Board where payments are made by other persons, etc.)").—(Lord Beswick.)

Lord BESWICK moved Amendment No. 33: Page 7, line 26, leave out ("to secure") and insert ("as soon as reasonably practicable after the beginning of the liquidation, to make arrangements for securing").

The noble Lord said: My Lords, with Amendment No. 33 I suggest we take No. 42. They are both drafting Amendments which do not materially affect the substance of the clause. Their purpose is to make clear the timing of the duties of the Board under subsections (1) to (4). The present text of subsection (1) requires the Board to secure—no particular time is mentioned—that a policyholder "receives or will receive" the appropriate payment "as soon as reasonably practicable after the time when the sum would" but for the liquidation "have fallen due under the policy". On consideration the Government took the view that the phrase "as soon as reasonably practicable" should rather govern the commencement, after the liquidation, of the Board's efforts to secure payments, and that it should be the Board's aim to have the payments made to the policyholder at the time when they would have fallen due, but for the liquidation, rather than as soon as reasonably practicable afterwards. It is a fine point, but I hope on balance it will be acceptable. Amendment No. 42 which relates to subsection (5), is simply a consequential Amendment to the Amendment to subsection (1). I beg to move.

Lord BESWICK

My Lords, I beg to move Amendment No. 34.

Amendment moved— Page 7, line 29, leave out ("receives or") and insert ("which was a United Kingdom policy at the beginning of the liquidation").— (Lord Beswick.)

Lord BESWICK moved Amendment No. 35: Page 7, line 30, leave out from ("receive") to ("in") in line 34 and insert ("ninety per cent. of any relevant future benefit under the policy at the time when the benefit").

The noble Lord said: With this Amendment I would propose, if noble Lords agree, to take Amendments Nos. 37 and 39. Amendment No. 35 contains a change which is consequential on Amendment No. 31 to Clause 11. The new words in Amendment No. 37 are consequential to Amendment No. 8 to Clause 4. These three Amendments, however, also give effect to a matter of substance: they provide that the Board's duty under Clause 11 in seeking to arrange a transfer of the company's long-term business or the issue of substitute policies is to secure that the policyholder will receive 90 per cent. of any relevant future benefit, as defined in the new subsection at the beginning of this clause. As previously drafted, the Board's duty was to secure that the policyholder received at least 90 per cent. The Amendments represent an attempt by the Government to meet the purpose of certain Amendments moved by the noble Lord, Lord Peddie, to Clause 11 in Committee. As he has now joined us, I hope that he will accept that this does what he sought to do. I beg to move.

Lord BESWICK

My Lords, I beg to move Amendments Nos. 36 to 42.

Amendments moved—

Page 7, line 41, leave out ("protected") and insert ("long term")

Page 7, line 42, leave out ("at least") and insert ("which were United Kingdom policies at the beginning of the liquidation")

Page 7, line 43, leave out from ("any") to end of line 44 and insert ("relevant future benefits under those policies")

Page 8, line 11 leave out ("at least")

Page 8, line 12, leave out from ("any") to ("the") in line 14 and insert ("relevant future benefit under")

Page 8, line 17, leave out from ("any") to end of line 18 and insert ("difference between any relevant future benefits under the policy it replaces and the corresponding benefits provided for under the substitute policy")

Page 8, line 19, leave out ("secure" and insert ("make arrangements for securing")— (Lord Beswick.)

5.31 p.m.

Lord WINTERBOTTOM moved Amendment No. 43: Page 8, line 23, leave out from ("13") to end of line 32 and insert ("and section (Exclusion and modification of duties of the Board where payments are made by other persons, etc.) and subsection (8) below, to secure that ninety per cent. of any relevant future benefit under any such long term policy of the company as is so mentioned which would have fallen due in accordance with the terms of the policy during that period is paid to the policyholder as soon as reasonably practicable after the time when the benefit in question would have fallen due under the policy; and any arrangements made by the Board in pursuance of subsection (2) or (3) above shall not be required to cover any such benefit in so far as any sums have been paid to the policyholder in pursuance of this subsection by reference to that benefit")

The noble Lord said: My Lords, this Amendment is simply a revision of the drafting of subsection (5). Its effect is threefold: first, it makes the wording of subsection (5) of Clause 11 more consistent with that of Clause 10(2), to which it is parallel, the only difference being that Clause 10(2) relates to benefits under a policy that mature before a company's liquidation and Clause 11(5) refers to benefits maturing after the beginning of a liquidation; secondly, it makes it clear that the Board's duty is to protect the policyholder to the extent of 90 per cent. and not more than 90 per cent. of the benefits he would have been entitled to under his policy; and thirdly, it permits the Board, in so far as they may have secured payments for the policyholder under this subsection, to reduce the scale of any protection they may subsequently provide under subsection (2) or (3). The Amendment has also been drafted in terms that reflect drafting changes proposed elsewhere in the Bill in other Government Amendments. I beg to move.

Lord BESWICK moved Amendment No. 44: Page 8, line 37, leave out from ("13") to end of line 41 and insert ("and section (Exclusion and modification of duties of the Board where payments are made by other persons, etc.) and subsection (7) below, to pay to the policyholder a sum equal to 90 per cent. of the value attributed to his policy for the purposes of any claim in respect of his policy in the winding up of the company, as soon as reasonably practicable after any such claim ").

The noble Lord said: My Lords, the purpose of this Amendment is to remedy a minor technical defect in the original version of subsection (6). I am advised that in the case of insurance companies that are being wound up by the court or under the court's supervision it is not uncommon for the court to dispense with the submission of formal "proofs" of debt by policyholders. The Amendment therefore eliminates references to the admission of "proofs" and instead refers to the admission of "claims" attributable to the value of the policy. The intention behind the subsection remains unchanged. I beg to move.

5.36 p.m.

Lord BESWICK moved Amendment No. 45: Page 9, line 10, leave out ("this section") and insert ("subsections (2) to (5) above").

The noble Lord said: My Lords, this Amendment improves the original text of subsection (8). This subsection enables the Board to make their assistance to a policyholder under Clause 11 conditional upon his payment of any premiums that would, but for the liquida- tion, have fallen due under his policy. However, it is not appropriate that the Board should be in a position to impose conditions of this kind when they are protecting policyholders under subsections (6) and (7) of Clause 11. These two subsections relate to the value attributed to a policy in the winding up of the company (or otherwise, as may be required by regulations under subsection (7)), a value which would be assessed as at the beginning of the liquidation. When protection is given on this basis it would be wrong for the policyholder to be required to pay premiums due since the beginning of the liquidation. The Amendment accordingly excludes assistance provided to policyholders under subsections (6) and (7) from the scope of subsection (8). I beg to move.

Clause 12 [Disproportionate benefits under long term policies]:

Lord WINTERBOTTOM moved Amendment No. 46: Page 9, line 18, after ("policy") insert ("of a company in liquidation which was a United Kingdom policy at the beginning of the liquidation").

The noble Lord said: My Lords, this Amendment is necessary as a consequence of the Amendment accepted in Committee which places the Board under an obligation, rather than giving them discretion, to refer a long-term policy to an independent actuary if it appears to them that the benefits are or may be excessive in any respect. Without the words "of a company in liquidation etc.…" the clause might be interpreted as placing the Board under an obligation to refer any such policy to an actuary. A duty to do so arises only in the case of a company in liquidation. The new phrase "… which was a United Kingdom policy at the beginning of the liquidation" is consequential of the new definition of eligible policyholders in Clause 4. I beg to move.

Lord BESWICK moved Amendment No. 47:

Page 9, leave out lines 24 to 34 and insert—"—

1. (a) stating, with respect to any of the benefits provided for under the policy, that 721 in his view the benefit or benefits in question are excessive; and
2. (b) recommending, accordingly, that for the purposes of sections 10 and 11 above any liability of the company under the policy or any future benefit under the policy should be treated as reduced or (as the case may be) disregarded;

then, for the purposes of the application of section 10, of any provision of subsections (1) to (5) of section 11, or of any provision of any regulations made under subsection (7) of section 11 above in relation to the policy (as the case may require), the liability or benefit in question shall he treated as reduced or (as the case may be) disregarded in accordance with the actuary's recommendation.

(3) In any case where—

1. (a) a claim has been admitted in the winding up of a company in respect of any policy which is the subject of a report by an actuary under subsection (2) above; and
2. (b) that report indicates, or the actuary makes to the Board a further report in writing indicating, what value would in his view have been attributed to the policy in the winding up if any future benefit under the policy to which any recommendation in the report under subsection (2) above relates had been treated as reduced or disregarded in accordance with the recommendation in determining the claim in respect of the policy in the winding up;

subsection (6) of section 11 above shall apply as if the value so indicated were the value attributed to the policy for the purposes of the claim in respect of the policy in the winding up.

(4) In this section "future benefit", in relation to any long term policy of a company in liquidation, means any sum which might have become payable by the company in accordance with the policy if the company had not gone into liquidation (whether or not it is a relevant future benefit under the policy within the meaning of section 11 above).".

The noble Lord said: My Lords, Amendment No. 47 is an extensive Amendment, but is only a drafting Amendment. Having said that it is only a drafting Amendment, let me say it is an important drafting Amendment, and it gives effect to a point made by my noble friend Lord Peddie in an Amendment which he later withdrew and which I undertook to have examined. The Amendment is designed partly to make the wording of the clause reflect the revised wording of Clause 11, and partly to rectify certain defects in the original clause which made the application of the clause slightly less comprehensive than it should have been. The intention remains that any duty of the Board under Clauses 10 or 11 in relation to a policy which is referred to an actuary under Clause 12 shall be modified in accordance with the actuary's recommendation.

The revised subsection (2) deals with the reduction of sums the payment of which the Board are required to secure in respect of outstanding claims or future benefits under long-term policies, or as a result of regulations made by the Secretary of State under subsection (7) of Clause 11. Paragraph (a) deals with the actuary's statement that benefits provided for under a policy are excessive, and paragraph (b) with his recommendation that benefits be reduced. I understand that this is what my noble friend wanted. I should not like it to be thought that we are not amending the Bill as a result of what he has said. The revised wording makes explicit what was implicit in the original version, that if only some of the benefits under a policy are excessive the actuary may recommend that they, and not the others, be reduced; and that the actuary may recommend that any benefit be disregarded altogether. I beg to move.

5.40 p.m.

Lord PEDDIE moved Amendment No. 48: After Clause 12 insert the following new clause:

Priority of debts to policyholders of protected policies in winding up

"Priority in liquidation for outstanding insurance claims and requirement that liquidator shall make payments on insurance claims covered by an indemnity from the Board.

.—(1) In the winding-up of a company in liquidation, every liability of the company in liquidation towards any policyholder under the terms of any policy evidencing a contract the effecting of which constituted the carrying on of general business of any class, being a liability which existed before the beginning of the liquidation to make a payment to a policyholder (all such liabilities being hereafter in this section referred to as "outstanding insurance claims"), shall be paid in priority to all other debts other than those specified in section 319 of the Companies Act 1948.

(2) The liquidator of a company in liquidation, as soon as practicable after the beginning of the liquidation, shall ascertain whether the assets of the company in liquidation, other than the assets representing the fund or funds maintained by the company in respect of its long term business, are sufficient to pay the debts specified in section 319 of the Companies Act 1948 and the outstanding insurance claims.

(3) If the said assets are sufficient for this purpose, the liquidator shall pay the debts specified in section 319 of the Companies Act 1948 and the outstanding insurance claims as soon as practicable after he has ascertained that the said assets are sufficient for this purpose, and before paying any other debts owing by the company in liquidation.

(4) If the said assets are insufficient for this purpose, or if the liquidator is uncertain whether or not the said assets are sufficient for this purpose, but the assets are sufficient to pay the debts specified in section 319 of the Companies Act 1948, the liquidator shall pay these debts and such percentage of the outstanding insurance claims as the liquidator considers the remainder of the said assets will cover provided such percentage is 90 per cent. of more.

(5) If the percentage ascertained in accordance with subsection (4) above is less than 90 per cent. the liquidator shall pay 90 per cent. of all outstanding insurance claims in respect of which the Board is prepared to indemnify the liquidator against all actions, claims and liabilities which may be incurred by him as a result of making such payments, and the percentage ascertained in accordance with subsection (4) above of all other outstanding insurance claims, provided the assets of the company in liquidation are sufficient for this purpose.

(6) If in order to discharge the duty placed on the Board by section 10 or section 11(5) above the Board indemnifies the liquidator against all actions, claims and liabilities which may be incurred by him as a result of making the payments specified by the Board, the liquidator shall forthwith make such payments from the assets of the company in liquidation, provided such assets are sufficient for this purpose."

The noble Lord said: My Lords, this Amendment, which deals with priority in liquidation, is similar to Amendments which my noble friend and I moved in Committee but it has been modified and improved in the light of the comments made at that stage. The wording relating to the indemnity to the liquidation in subsections (5) and (6) has been altered, as a result of legal advice I have received, to give fuller indemnity. As I mentioned earlier, my noble friends and I are very much concerned to ensure that if an insurance company fails, the cost of any protection arrangements should be borne as fairly as possible and this Amendment is directed simply towards that end. If an insurance company transacting general insurance—that is, insurance other than life insurance—fails, then the policyholder claimants in the liquidation fall into two classes. First, there are those who had an insurance claim on the policy before the liquidation but the claim has not been made or paid before the company failed; for example, a man's house might be burnt down, and I gave an illustration on a previous occasion. Secondly, there are policyholders without claims outstanding but who have a claim in the liquidation for a refund of the proportionate part of the last premium they paid so that they may replace the insurance with another insurance company.

In this country these two kinds of claim in the liquidation rank equally so that if, for example, the assets of the failed company were sufficient to cover, say, 80 per cent. of the liabilities, then a person with an outstanding £10,000 fire claim on his house would receive £8,000 from the liquidator, usually after very considerable delay, perhaps running into several years, while a person who had just paid a £20 premium could receive, say, £16 from the liquidator. This is quite different from the practice in most other countries, where the outstanding insurance claims take priority over claims for part refund of premium. In most other countries the £10,000 fire claim would be met in full but the claim for a premium refund of, say, £20 might be met only to the extent of £12, depending on the assets available.

This Amendment seeks to bring the position in this country into line with most other countries. It does, of course, make a small change in the liquidation law as it applies to insurance companies, and this point was mentioned in reply to my contention when we discussed this matter on the last occasion. However, there is in my opinion nothing wrong with that in a Bill dealing with policyholder protection. I might say in passing that the Insurance Act 1973 made quite substantial changes in the liquidation law applying to insurance companies. The proposed change is important for two reasons. First, it would mean that outstanding insurance claims of all kinds would normally be paid in full whereas the guarantee scheme in the Bill guarantees payment only at the 90 per cent. level, and then only on policies held by individuals. Secondly, it would reduce the cost of the guarantee scheme because in most cases the outstanding insurance claims would be met in full from the assets of the failed company, so that more than likely there would be no cost under the guarantee scheme.

I am sure that in due course we shall bring our insurance liquidation procedures into line with those of Europe, and this will include the change to which I am referring, but this is not likely to occur for a number of years, perhaps ten years or so. It is therefore important to make this change now, when we are discussing this whole question of protection of the policyholder, both to protect the insurance claimants in any insurance company which may fail in the next 10 years or so, and also to protect the policyholders in other insurance companies who have to pay the levy. The provisions in the Amendment would in no way prejudice further changes to come into line with Europe, if that be our ultimate intention.

Subsections (2) and (3) require the liquidator to ascertain whether the assets of the failed company are sufficient to cover the statutory preferential creditors and the outstanding insurance claims and then to pay such claims as soon as possible. Subsections (4) and (5) cover the the position where there is doubt whether the assets are sufficient to cover the preferential creditors and outstanding claims, although this will rarely be the position if the Department of Trade has acted reasonably promptly when the insurance company commenced to fail. These subsections provide that the liquidator shall pay 90 per cent. of the outstanding insurance claims with a full indemnity from the Board in respect of claims covered by the guarantee scheme, if this is necessary. These subsections deliberately do not provide for the 100 per cent. payment on compulsory insurance claims because to give a super priority to compulsory insurance claims would unnecessarily complicate the position in liquidation. In order to implement the 100 per cent. guarantee for these claims, which noble Lords will recollect is provided for in the Bill, the Board can always proceed by arrangement with the liquidator or alternatively can implement the guarantee separately. As I have mentioned previously, it should be very unusual for the assets of the failed company to be insufficient to meet the preferential creditors and the outstanding insurance claims in full—that is, unless there has been considerable delay in intervening in the affairs of the company which was on the point of failure.

Subsection (6) relates to life insurance and provides that if the Board should decide to meet its obligations under the Bill in respect of the life insurance business of a failed company by giving the liquidator a full indemnity, then the liquidator should accept the indemnity and make the payments accordingly. This provision is required simply to avoid difficulties similar to those which have arisen with Nation Life, where the liquidator has felt unable to accept the indemnity offered without first obtaining the authority of the court, and this has delayed matters very considerably. This Amendment is important in order to treat fairly both the policyholders of the failed insurance company and the policyholders in other insurance companies who have to nay the levy.

I frankly admit—I am sure this will be mentioned—that the drafting of the Amendment is legal and highly technical and may in consequence be imperfect. If the Government advisers consider that it is technically imperfect, I suggest that it is for the Government to draft a technically correct Amendment which will achieve the same result and not to refuse it or refuse to do anything about it because it is inconvenient. I believe that this Amendment is valuable and moves a considerable step forward in the whole aspect of protection.

Baroness FISHER of REDNAL

My Lords, my comments will be brief because my noble friend Lord Peddie has enunciated the technical reasons for the Amendment. I intend to adopt a common sense approach, although that does not mean that my noble friend did not move the Amendment in a common sense way. If we are to look at consumer protection —and one thinks of this as a consumer protection Bill, though, as we go further through it we shall have to be very careful that, instead of being a Policyholders Protection Bill it does not become a Policyholders Penalty Bill—we must recognise that policyholders who are not ambitious in their insurance will be left holding the baby while all the other people get away scot free. It is important—and I feel that my noble friend Lord Peddie made this quite clear—to recognise that what is required is a review of the liquidation procedures so that we do not have the lengthy and expensive liquidation procedures of the present time. We should be able to avoid that and to achieve a system which would enable benefits to continue to be paid during those liquidation procedures. What we are asking for is good consumer protection and reasonable fairness. By that, we are saying that, before we ask policyholders in any other companies which might be called on to make payment under the guarantee scheme, we should first of all make the first claim on the assets of the company which is the defaulter. I do not feel that this is an unusual request. I believe that such a procedure is fairly general in other parts of the world.

However, the most important thing—and I believe my noble friend made this point with the example which he gave this afternoon and on previous occasions about the person who is involved in fire insurance—is, if we are to protect the policyholder who is in difficulties, to protect him while his company is also in difficulties. I feel that our Amendment does what is necessary; that is, it makes sure that hardship is avoided so far as possible. I believe my noble friend made it quite clear that the need of a person who has to draw on his insurance company because of a disaster of some magnitude is greatest and that it should be met first. The claim of such persons should have priority under this new procedure. I support my noble friend's observations.

Lord BESWICK

My Lords, as my noble friend Lord Peddie said, the substance of these Amendments is similar to the new clauses which he proposed in Committee in Amendments Nos. 69 and 70 and which were later withdrawn. However, I see that he has acknowledged some flaws in the drafting of those Amendments.

Subsections (1) to (5) apply in relation to general business and would have the effect of creating a preferential class of creditors—namely, protected policyholders whose claims had accrued due before the beginning of the liquidation proceedings. We have a number of reservations about this proposal which I shall give in some detail, and some of which were given at the Committee stage. However, the principal objection to the new clause is that we think it would be wrong to make a fundamental change in the arrangements for winding up insurance companies in this ad hoc, incidental way. As my noble friend Lady Fisher said, a review of liquidation procedures is required. I agree with her. As a result, a detailed study of the subject is now under way in the Department of Trade, and, while changes will undoubtedly be necessary, I feel that she would agree that, until the study is complete and conclusions have been offered, alterations should not be made. Moreover, there will have to be extensive consultation with the insurance industry. I have no doubt that what my noble friend Lord Peddie has said reflects the views of one insurance company, but there are other views as well and they must all be considered before we have such a revision of the liquidation procedures.

There are a number of difficulties and it might be helpful if I enunciated them. In the first place, the proposals in the new clause would, in effect, result in money which, under the present law, would have been paid to non-protected policyholders and other creditors being used to compensate protected policyholders. Moreover, as the effect of the Amendment would be substantially to worsen the position of ordinary creditors in a winding-up, it could well lead to such creditors being less willing to extend credit to insurance companies. It could thus have a damaging effect on the conduct of the business of insurance companies. Indeed, if creditors were to be dealt with in the way suggested here, they would clearly seek to counteract the effects of the provision by insisting on the provision of security for their debts which would give them priority over the protected policyholders. Then we should be in a worse position than we are now.

Lord PEDDIE

My Lords, there is no suggestion that they should have priority over such creditors, because the latter are already protected under the Act.

Lord BESWICK

But, my Lords, the effect of what is proposed here would be that ordinary creditors would be in a worse position in relation to the category of people whom my noble friend proposes to put into a position of priority. I am saying that, if that were done, any company dealing with the insurance company would seek to safeguard its position and that the second position might well be worse so far as the policyholder was concerned.

Subsection (6) applies to long term business. Here again, we have doubts for the same general reason as I have given for the other provisions in the new clause. In particular, the proposed new clause would interfere with the carrying out by the liquidator of his duty to exercise his powers for the benefit of the creditors as a whole, and would thus be liable to prejudice the interests of other creditors. It may be that the proposers of the Amendments envisage that losses suffered by other creditors in this way would be covered under the indemnity. If so, there is a risk that, in certain circumstances, the compulsory indemnity would, in practice, prove more expensive to the Board. I emphasise that if it were more expensive to the Board it would be more expensive to the insurance industry which will finance the Board. I am sure that that is something my noble friend does not want. I put to him that there is that risk in certain circumstances and that it would be cheaper to make payments to policyholders themselves. The proposed system seems likely to give rise to complex and expensive disputes between the Board, the liquidator and the other creditors.

I feel that there are merits in some of what my noble friend is proposing but, in so far as there are such merits, after consultation we feel that the way to deal with them would be in legislation effecting a comprehensive revision of the arrangements for winding up insurance companies. On the understanding that that is being done, I hope that my noble friend will withdraw the Amendment.

Lord LYELL

My Lords, before the noble Lord sits down, may I ask him how quickly we may expect some definite news from the Department of Trade and Industry about this matter? We are gratified to hear that the position of insurance claims is receiving special consideration by the Department, because some of us feel that insurance claims and insurance creditors, being in a very special position, merit special considerations. We are very grateful to hear that their case is being considered. Can the noble Lord tell us when we may expect some definite news? Will it be next year or two years ahead, or is it somewhat further away—perhaps five years? Or is it even a question of its going so far as to be contained in a complete revision of company legislation? If the noble Lord can give some indication, we shall be very grateful.

Lord BESWICK

My Lords, I am afraid that I cannot answer the latter part of the noble Lord's question. But in relation to the first part of it, so far as the time scale is concerned, I understand that next month there is to be a meeting with the insurance industry on this matter. When legislation would result will depend on the Parliamentary timetable.

Lord DAVIES of LEEK

My Lords, may I ask my noble friend a question which has occurred to me? I shall try to make it simple and clear, and perhaps my noble friend Lord Peddie will then help me. Let us consider subsection (6) of the new clause suggested by my noble friend, with much of which I agree, and let us put the semantics into plain English. The subsection states: If in order to discharge the duty placed on the Board by section 10 or section 11 … What do Sections 10 and 11 do? They enable the Board to meet policyholders; under Section 10 the long-term policyholders first. Is that correct?

Secondly, there is the question of special provision for future benefits. Let us suppose that I insure my granddaughter for the period when she goes to university on a long-term basis. I happen to be now insured with an insurance company that has gone into liquidation. The clause proposed by my noble friend Lord Peddie now covers me, as the old man, for my long-term policy, and it covers my granddaughter for her university grant when she goes to university; which, looking forward to establishing an intelligent progenitress after me, I hope will happen.

Such cases have to be paid first. But my brother rents to the agent of this company a nice little house in the middle of a South Wales area that is now very prosperous. Suddenly the agent owes my brother £250 in back rent, and he has not been able to pay it because the entire firm has collapsed. Under subsection (6) of the proposed clause my granddaughter and myself would get priority, but no legal action could be taken in the case involving my brother, because the clause exempts the company from legal action. That I believe is, in English, the gist of subsection (6). What is the position?

Lord PEDDIE

My Lords, subsection (6) indicates the way in which the indemnity can facilitate the operation of the liquidator in meeting the claims. In short, the Board are seeking to give a measure of protection. The liquidator is bound by current liquidation laws. Whatever claims there may be—whether they be from one's grandson, mother, or whoever it may be—have to wait until the liquidator has made his decision by being able to collect together all the necessary evidence. At the end of that period he will pay out in accordance with the assets, in relation to the claims made through him.

The new clause will mean that those people whom we are seeking to protect will have a prior claim, and the liquidator can deal with those payments out of the assets of the company. At present the law does not permit this. At the moment he cannot pay anyone out until he has been able to ascertain the full position. The liquidator could not do that unless he received an indemnity, and it is suggested here that an indemnity be given to the liquidator and, indeed, that the liquidator be compelled to accept it, which is equally important, so that he can proceed with expedition. It is as simple as this. As my noble friend said a few moments ago, it is no use talking about protection unless that protection is related to need and is provided quickly. The whole clause is operating towards that end.

I was very appreciative of some of the comments made by my noble friend Lord Beswick. He said that much of what is expressed by my noble friends and myself through the Amendment has a great deal of merit, but he also indicated some of the difficulties. Of course there are always difficulties. During the many long years that I have been in your Lordships' House I have never heard a reply from the Front Bench when there has not been a parade of difficulties. That never happens, unless an Amendment happens to have been prompted by the Front Bench in the first place. There are always difficulties; there will be here. But at least abroad these difficulties have been overcome. What we propose operates abroad, and there is no difference in this regard in the operation of a company abroad as compared with the situation here. Furthermore, with regard to the alteration of the liquidation laws I repeat what I said in my opening statement. The 1973 insurance Act created very substantial changes in our liquidation law. Therefore, I cannot accept the argument that we cannot interfere with liquidation laws, because we happen to be dealing with a Bill at present which gives protection, if already there is precedence for so doing.

I now turn to another valid point which my noble friend Lord Beswick made on a previous occasion, and to which we must pay regard; that is, if we are giving emphasis in liquidation to certain classes will it cause, in the minds of the normal creditors, some fear of dealing with insurance companies? Again, I point out that where this sort of operation takes place on the Continent no one is reluctant to deal with insurance companies. I am quite certain that big scale creditors—let us say, the landlords of office premises—will hardly be less willing to extend credit to insurance companies. They are always desperately eager to deal with them, having the feeling that there is there a greater measure of security. I repeat that there is no difficulty experienced in countries abroad in this regard. What is proposed operates abroad, and so all the points mentioned have no validity.

My third and last point is that I do not think this new clause would adversely affect the operation of the liquidator. It would not interfere in any way with his powers and responsibilities. All it would do, through the process of the indemnity, would be to ensure that the group of persons who are seeking to benefit are not involved in the long term waiting that is usually associated with liquidation and the operation of the liquidator. That, my Lords, is the point of view of my noble friends and myself. This is not a revolutionary Amendment. It is directly in line with the practice on the Continent today, and presumably something along these lines will be urged in the very near future. Therefore, we suggest that it would be as well to take the necessary action now, because we are dealing with this matter of the protection of policyholders.

Lord MATS

My Lords, I wish to raise a point for clarification. I am not opposing the Amendment. May I ask the noble Lord, Lord Peddie, whether he is satisfied that by giving this indemnity, and the liquidator thereby paying out the policyholder, one would not be placing the policyholder in the position of a preferential creditor? Secondly, what would be the position if the liquidator had sufficient funds to meet these claims but was left without sufficient funds to carry out the basis of the liquidation? One just cannot switch off, as I am sure the noble Lord realises. The liquidator must have certain funds in order to proceed with the winding down of a company. But I am rather bothered about this point regarding the preferential creditor.

Lord PEDDIE

My Lords, with regard to preferential creditors, this matter is already laid down in other legislation, and therefore what are recognised in law as the rights of preferential creditors will not be superseded. I am quite sure that the noble Lord, Lord Mais, appreciates the nature of this point. With regard to the liquidator, obviously he will have to decide at the beginning whether the assets of a failed company are adequate to pay the amounts we have in mind. I have argued on previous occasions that in many cases the assets of a failed company are fairly substantial but are just short of being sufficient for the company to be solvent. Without the indemnity the liquidator could not, and would not, act. In answering the noble Lord, Lord Mais, I point out that we must have indemnity. I agree, and entirely accept, that one could not operate this unless the Board were empowered in law to grant an indemnity to the liquidator. It is only with the use of the indemnity that the liquidator will be able to do what is required under this Amendment.

Lord BESWICK

My Lords, I think that my noble friend has made out a case for revision of the law of liquidation. What he has not made out is a case for revising in this way. There is a meeting next week between the Department of Trade and the insurance industry for this purpose, to consider what changes might be made. I think it would be advisable if we were to listen to all those in the industry to see if we could come to some agreed decision. On that behalf I can invite my noble friend to withdraw his Amendment.

Lord PEDDIE

My Lords, in view of the statement made by my noble friend that a meeting on this matter is to take place within the next fortnight, I have no hesitation in withdrawing my Amendment and thanking my noble friend for the comments he has made.

Amendment, by leave, withdrawn.

Clause 13 [General provisions with respect to the performance by the Board of their duties]:

Lord BESWICK

My Lords, I beg to move Amendment No. 49. This was dealt with when we discussed Amendment No. 13.

Amendment moved—

Page 9, line 36, leave out from beginning to end of line 42 and insert—

"(1) Where it appears to the Board, in the case of any policy of a company in liquidation—

1. (a) that payment in respect of any sums falling due under the policy could have been made in accordance with the policy to a person other than the policyholder; or
2. (b) that any sums paid under the policy would have been subject to any trust, charge or other agreement binding on the policyholder;

the Board may secure the payment of any sum payable to the policyholder in accordance with any of the provisions of sections 6 to 10 or in accordance with section 11(5) above or pay any sum so payable in accordance with section 11(6) or (7) above (in whole or in part) to that other person or (as the case may be) to the person appearing to the Board to be entitled under the trust, charge or agreement in question, instead of to the policyholder.

Any payment made by virtue of this subsection to a person other than the policyholder shall be treated for the purposes of the provision in question as a payment to the policyholder and may be made on such conditions (with respect to the total or partial assignment to the Board of any rights of the recipient against the policyholder or any other person, or otherwise) as the Board think fit.

(1A) The Board may secure the payment of any sum payable to a policyholder in accordance with any of the provisions of sections 6 to 10 or in accordance with section 11(5) above, or payable under section 7 above to a person entitled to the benefit of a judgment, and of any sum they are authorised to secure for a person other than the policyholder by virtue of subsection (1) above, by either or both the following methods, that is to say—

(a) by themselves making payments in respect of the sum in question; or".—(Lord Beswick.)

Lord BESWICK

My Lords, I formally beg to move Amendment No. 50.

Amendment moved— Page 10, leave out subsections (2), (3), (4) and (5).—(Lord Beswick.)

6.12 p.m.

Lord BESWICK moved Amendments Nos. 51, 52, 53 and 54:

Page 11, line 45, at end insert:

"(7A) Any duty of the Board to secure the payment of any sum payable under section 7 above to a person entitled to the benefit of a judgment shall be subject to compliance on his part with any conditions imposed by the Board with respect to the total or partial assignment to the Board of any rights he may have against any other persons in respect of any event giving rise to the liability of the company in liquidation by reference to which that sum is so payable.

(7B) In connection with imposing any conditions under any of the preceding provisions of this section with respect to the assignment to them of any rights the Board may make any arrangement which appears to them to be appropriate with any person on whom the conditions are imposed with respect to the manner in which they are to apply any sums they may receive by virtue of the rights in question."

Page 12, line 3, leave out ("(a)").

Page 12, line 5, after ("therein") insert ("(a)").

Page 12, line 8, leave out ("and (b)")

and insert—

1. "(b) of any such rights of a person for whom the Board has secured any payment in accordance with section 7 above as are mentioned in subsection (7A) above; and
2. (c) of any rights which a person to whom any payment has been made by virtue of subsection (1) above may have against the policyholder in respect of the policy or any sums falling due thereunder or against any other person in respect of any event giving rise to any liability of the policyholder by virtue of which the payment in question was made;

and any regulations so made may also provide".

The noble Lord said: My Lords, I beg to move Amendments Nos. 51, 52, 53 and 54 and at the same time to talk to Amendments Nos. 80 and 81. The purpose of these Amendments is to spell out more fully the Board's ability—whether through their own actions or through regulations made by the Secretary of State under subsection (8)—to recover some of the money they pay out through obtaining assignment of certain legal rights of those in receipt of their assistance. They also make more explicit and effective the Board's power to return to policyholders or others whose rights are assigned to the Board some of the money they recover in this way. The Amendments are basically drafting improvements: no change of policy is involved.

In Amendment No. 51 to line 45 of page 11, two new subsections are proposed. Subsection 7(A) is intended to make clear that any assistance by the Board under Clause 7 to a person en-tiled to the benefit of a judgment shall be subject to compliance on his part with any conditions imposed by the Board with respect to the assignment of his rights; that is, conditions comparable to those which may be imposed by the Board under subsection (7) of Clause 13 in connection with payments to policyholders and others in the exercise of their duties under Clauses 6, 8, 10 and 11. The new subsection is necessary because subsection (7) refers only to policyholders and covers only rights under or in respect of a policy, rights in respect of payments under a policy, and rights in respect of any event giving rise to a liability of the company under a policy. In the case of Clause 7, provision is required for the assignment of the rights of the person entitled to the benefit of the judgment in respect of any event giving rise to the liability of the company resulting from the judgment. These rights do not arise under the Bill, but by virtue of a judgment.

The new subsection (7B), together with the two Amendments to Clause 18, enables the Board to make arrangements with persons on whom conditions as to the assignment of rights are imposed under Clause 13 concerning the repayment by the Board to the assignor of some of the money they may receive by virtue of the rights in question. It is felt that without these provisions the Board might have been prevented by Clause 18—application of general receipts by the Board—from returning to policyholders and others any of the money they may receive by virtue of the rights assigned to them under subsections (1), (7) or (7A). The Board will normally, for example, wish to repay to the policyholder anything they may receive in the liquidation in excess of the 90 per cent. protection they will already have afforded the policyholder under Clauses 8, 10 or 11.

The changes to subsection (8) in Amendments Nos. 52 to 54 are consequential partly on the amplification to subsection (7) provided by the new subsection (7A) and partly on the new subsection (1) of this clause proposed in Amendment No. 49. As noble Lords know, this Amendment introduces another reference to the assignment to the Board of the rights of recipients of the Board's assistance. Their purpose is to ensure that any regulations made by the Secretary of State under subsection (8) may provide for the vesting in the Board of rights not only of policyholders but of all persons who may, by virtue of Clause 7 or the new subsection (1) of Clause 13, be in receipt of the Board's assistance.

Lord BESWICK

My Lords, I beg to move Amendment No. 55 which was dealt with in the discussion on Amendment No. 12.

Amendment moved— After Clause 13 insert the following new clause:

Exclusion and modification of duties of the Board where payments are made by other persons, etc.

(".—(1) Any payment made by any person other than the Board to the policyholder, to a person entitled to the benefit of a judgment, or to any other person, being a payment which is referable to any such liability of a company in liquidation as is mentioned in section 6, 7 or 8 above, shall be treated as reducing any sum payable to the policyholder or to the person entitled to the benefit of the judgment, in accordance with any provision of those sections, by reference to that liability.

(2) This subsection applies in any case where it appears to the Board, in respect of a long term policy of a company in liquidation—

1. (a) that any other person has made a payment to the policyholder or to any other person which is referable to any liability of the company under the policy which was outstanding at the beginning of the liquidation or which is otherwise required in accordance with subsection (3) below to be taken into account in relation to the policy; or
2. (b) that any other person has taken any other measures for assisting or protecting 738 the policyholder (whether measures of a like description to those open to the Board under subsection (2) or (3) of section 11 above or otherwise) which ought to be taken into account for the purpose of excluding or modifying any of their duties towards the policyholder under sections 10 and 11 above.

(3) Any payment made—

1. (a) by reference to any valuation of a long term policy of a company in liquidation or of any of the benefits provided for under any such policy; or
2. (b) by reference to any future benefits under a long term policy of a company in liquidation within the meaning of section 12 above;

shall be taken into account in relation to that policy for the purposes of subsection (2)(a) above (whether it was made to the policyholder or to any other person).

(4) Nothing in sections 10 and 11 above shall require the Board in a case to which subsection (2) above applies, to take any measures for assisting the policyholder in respect of the long term policy in question where it appears to the Board to be inappropriate to do so in view of any such payment or other measures of assistance or protection as are mentioned in that subsection.

(5) In any case to which subsection (2) above applies, other than one falling within subsection (4) above, the Board may treat any sum payable to the policyholder in accordance with section 10 or section 11(5), (6) or (7) above and any sum to be secured for the policyholder in accordance with section 11(1) to (4) above as reduced to any extent appearing to them to be appropriate in the circumstances of the case.

(6) Any sums secured by the Board under subsection (5) of section 11 above for a policyholder of a company in liquidation or for any other person by reference to any relevant future benefits under a long term policy within the meaning of that section shall be treated as reducing any sum payable to the policyholder in respect of that policy in accordance with subsection (6) or (7) of that section.

(7) The Board may postpone taking any of the measures provided for by sections 6 to 11 above in any case where it appears to the Board that, independently of any measures they may take, any other person (not being the liquidator) may make any payment or take any measures which would, by virtue of subsection (1), (4) or (5) above, affect any of their duties under those sections in relation to the case in question.

(8) A payment is referable to a liability of a company in liquidation for the purposes of this section if it has the effect of reducing or discharging, or is otherwise made by reference to, that liability or any liability of the policyholder or any other person from which that liability arises.")

Clause 14 [Power of the Secretary of State to vary the duties of the Board]:

Lord BESWICK moved Amendment No. 56: Leave out Clause 14.

The noble Lord said: My Lords, I beg to move Amendment No. 56 and with it to discuss Amendments Nos. 89, 90, 91 and 97. There were a number of comments made by noble Lords in Committee. We took note of them, and I hope that they will all welcome the Government's proposal to dispense with Clause 14. We had felt there was virtue in a provision of this sort, bearing in mind that with complex legislation in a new field such as this it might be desirable to have a power to make adjustments in the light of experience and of changing circumstances, without the need for a new Act of Parliament. In view of the opposition which the clause has aroused —and I will not detail the roll of honour of all those who opposed it—we are prepared to drop it.

This leaves us with the problem of extending the protection provided by the Board from 90 per cent. to 100 per cent. in the case of new types of compulsory insurance. The Government now propose to deal with this in the legislation under which the type of insurance concerned is made compulsory. This may not be possible, however, in the case of insured occupational pension schemes approved for contracting out of the State scheme under legislation now before Parliament. We may therefore need at a later stage to propose a Government Amendment to this Bill to cover this point. Amendments Nos. 89, 90, 91 and 97 are consequential on the elimination of this the last of the Secretary of State's order-making powers, except for that in Clause 19. I hope it will meet with the approval of the House.

Lord ABERDARE

My Lords, we are grateful to the noble Lord for this large concession. This clause stuck in our gullets at the Committee stage. We are happy that our throats are once again clear now that this clause is omitted. It would have permitted the Secretary of State to extend the scope of the Bill by Statutory Instrument; it could have gone far beyond what we thought was the limited objective of the Bill, to protect the private policyholder, and could extend to cover corporate bodies or compensate more than 90 per cent. or include marine, aviation and transport insurance or even Lloyd's. We felt that this clause invalidated a lot of the rest of the clauses in the Bill. The fact that it is now to be dropped gives us great satisfaction and we are indeed grateful.

Lord BALFOUR of INCHRYE

In a sentence, my Lords, as one of the main objectors to the original clause, I should like to thank the Minister for what he has done. There will be very few mourners for the old Clause 14 from anyone on any side of the House who has great respect for Parliamentary rights over the Executive.

Clause 15 [Interim payments to protected policyholders of companies in financial difficulties]:

6.20 p.m.

Lord BESWICK

My Lords, I beg to move Amendments Nos. 57 to 61.

Amendments moved—

Page 12, line 40, leave out ("is a company in financial difficulties") and insert ("not being a company in liquidation, is a company in provisional liquidation")

Page 12, line 42, leave out paragraph (a).

Page 12, line 46, at end insert ("provided that the petition for the winding up of the company which led to his appointment was presented after 29th October 1974.

(1A) A policyholder is eligible for assistance under this section—

1. (a) if he is a policyholder in respect of a general policy or a long term policy of a company in liquidation which was a United Kingdom policy at the beginning of the liquidation; or
2. (b) if he is a policyholder in respect of a general policy or a long term policy of a company in provisional liquidation which was a United Kingdom policy at the time when the provisional liquidator was appointed.")

Page 13, line 3, leave out from ("of") to ("on") in line 4 and insert ("policyholders who are eligible for assistance under this section")

Page 13, line 7, at end insert ("or").—(Lord Beswick.)

Lord BESWICK: My Lords, I beg to move Amendment No. 62.

Amendment moved— After Clause 15 insert the following new clause:

Companies in financial difficulties: transfers of business etc.

(".—(1) An authorised insurance company, not being a company in liquidation, is a company in financial difficulties for the purposes of this section if—

1. (a) it is a company in provisional liquidation within the meaning of section 15 above;
2. (b) it has been proved, in any proceedings on a petition for the winding up of the company under the Companies Act 1948 or (as the case may be) the Companies Act (Northern Ireland) 1960, to be unable to pay its debts; or
3. (c) an application has been made to the court under section 206 of the Companies Act 1948 or section 197 Companies Act (Northern Ireland) 1960 for the sanctioning of a compromise or arrangement proposed between the company and its creditors or any class of them (whether or not any of its members are also parties thereto) and the terms of the compromise or arrangement provide for reducing the liabilities or the benefits provided for under any of the company's policies;

provided that, in a case falling within paragraph (b) above, the petition was presented after 29th October 1974, and in a case falling within paragraph (c) above, the application was made after that date.

(2) Subject to the following provisions of this section, the Board may exercise any power conferred on them by subsection (3) or (4) below for the purpose of safeguarding policyholders of a company in financial difficulties who are eligible for protection under this section, or any class or description of such policyholders, to any extent appearing to the Board to be appropriate in any case or in any class or description of case, against loss arising from the financial difficulties of the company.

(3) Subject to the following provisions of this section, the Board may take any measures appearing to them to be appropriate for securing or facilitating the transfer of all or any part of the insurance business carried on by a company in financial difficulties to another authorised insurance company, on terms (including terms reducing the liabilities or the benefits provided for under any policies) appearing to the Board to be appropriate in any case or in any class or description of case.

(4) Subject to the following provisions of this section, in any case where it appears to the Board that it would be practicable to secure the purpose mentioned in subsection (2) above by giving assistance to the company in financial difficulties to enable it to continue to carry on insurance business, the Board may take such measures as appear to them to be appropriate for giving such assistance.

(5) Without prejudice to the generality of subsection (4) above, the Board may make the giving of any assistance to a company in financial difficulties under subsection (4) above conditional on the reduction of any liabilities or benefits provided for under any policies of the company to any extent appearing to them to be appropriate in any case or in any class or description of case.

(6) The Board shall not exercise any power conferred on them by subsection (3) or (4) above for the purpose of safeguarding any policyholders of a company in financial difficulties in any case where it appears to the Board that—

1. (a) persons who were members of the company at the relevant time; or
2. (b) persons who had any responsibility for or who may have profited from the circumstances giving rise to the company's financial difficulties;

would benefit to any material extent as a result of any measures the Board may take under either of those subsections.

In this subsection and in the following provisions of this section "the relevant time" means—

1. (a) in a case falling within subsection (1)(a) above, the time when the provisional liquidator was appointed;
2. (b) in a case falling within subsection (1)(b) above, the time when the winding up petition was presented; and
3. (c) in a case falling within subsection (1)(c) above, the time when the application was made under section 206 of the Companies Act 1948 or (as the case may be) under section 197 of the Companies Act (Northern Ireland) 1960.

(7) The Board shall disregard for the purposes of subsection (6) above any benefit which may accrue to any such persons as are there mentioned who are policyholders of the company in financial difficulties eligible for protection under this section in their capacity as such.

(8) The Board shall not take any measures in pursuance of subsection (3) or (4) above for the purpose of safeguarding any policyholders of a company in financial difficulties who are eligible for protection under this section in any case where it appears to the Board that it would cost them less to take whatever measures may be required for the assistance of the policyholders in question under sections 6 to 11 above in the event of the company's going into liquidation.

(9) A policyholder of a company in financial difficulties is eligible for protection under this section if he is a policyholder in respect of a general policy or a long term policy of the company which was a United Kingdom policy at the relevant time.")—(Lord Beswick.)

Clause 16. [The insurance industry levies]:

Lord BESWICK

My Lords, I beg to move Amendment No. 65.

Amendment moved— Page 13, line 31, leave out from ("of") to ("and") in line 32 and insert ("general policies which were United Kingdom policies at the relevant time")—(Lord Beswick.)

Lord Beswick: My Lords, I beg to move Amendment No. 67.

Amendment moved— Page 13, line 41, after ("1974") insert ("which were United Kingdom policies at the relevant time")—(Lord Beswick.)

Lord Beswick: My Lords, I beg to move Amendment No. 70.

Amendment moved— Page 14, line 3, after ("description") insert (" which were United Kingdom policies at the relevant time ")—(Lord Beswick.)

Lord Beswick: My Lords, I beg to move Amendment No. 71.

Amendment moved— Page 14, line 5, after (" description") insert (" which were United Kingdom policies at the time when the amounts in question were so recorded ")—(Lord Beswick.)

Lord BESWICK moved Amendments Nos. 72 and 74:

Page 14, line 7, after (" (6)") insert (" or (6A)").

Page 14, line 8, leave out subsection (6) and insert—

(" (6) In calculating a company's net premium income for any year in respect of policies of any description, any rebates or refunds recorded in the company's accounts during that year as allowed or given in respect of any amounts so recorded during that or any previous year as paid or due to the company by way of premiums under policies of that description which were United Kingdom policies at the time when the rebates or refunds were so recorded shall be deductible.

(6A) In calculating a company's net premium income for any year in respect of general policies, any sums recorded in the company's accounts during that year as paid by or due from the company by way of premiums for reinsuring its liabilities towards policyholders under general policies which were United Kingdom policies at the time when the sums in question were so recorded shall be deductible.")

The noble Lord said: My Lords, in moving this Amendment I should also like to move Amendment No. 74. These two Amendments follow from an undertaking which we gave in Committee. Clause 16(6) deals with the deductions that may be made from a company's gross premium income year by year in order to arrive at that company's annual net premium income on which the insurance industry levies are to be calculated. In Committee the Opposition put down three Amendments of a technical nature to this subsection, to the effect that (i) refunds deductible under paragraph (b) should be refunds recorded in the company's accounts and not "refunds given" during the year in question; (ii) similarly, reinsurance premiums deductible under paragraph (c) should be those recorded rather than those paid during the year; and (iii) reinsurance premiums should be deductible only in respect of premium income from general busness; leviable premium income from long-term business should be gross of reinsurance ceded. The Government undertook in Committee to consider these three points further in consultation with the industry.

The Government have now discussed these points with the industry, and there is no disagreement about objectives. The drafting of the original Amendments was not entirely satisfactory, however, and the Government are proposing that the old subsection (6) of Clause 16 should be replaced with two new subsections to achieve the desired result. The new subsection (6) is to deal with rebates and refunds "recorded in the company's accounts"; and new subsection (6A) is to deal with the deduction, in the case of general business only, of relevant reinsurance premiums "recorded in the company's accounts as paid by or due from" the company. Amendment No. 72 to subsection (5), in line 7 of page 14, is simply a consequential of the division of old subsection (6) into two new subsections. I hope these Amendments will be acceptable, as they were intended to meet the points made. I beg to move.

Lord ABERDARE

My Lords, I am grateful for these Amendments.

Lord BESWICK

My Lords, I beg to move Amendment No. 75.

Amendment moved— Page 14, line 37, at end insert ("section (Companies in financial difficulties: transfers of business, etc.)")—(Lord Beswick.)

Clause 17 [Treatment of business as, or as not being, long term business for the purposes of section 18]:

Lord WINTERBOTTOM moved Amendments Nos. 76 to 79:

Page 15, line 14, after first ("of") insert ("and Schedule 2 to")

Page 15, line 16, at end insert ("and Schedule 2 to that Act")

Page 15, line 20, after ("of") insert ("and Schedule 2 to")

Page 15, line 23, at end insert ("and Schedule 2 to that Act")

The noble Lord said: My Lords, I should like to move Amendments Nos. 76, 77, 78 and 79 en bloc. These are simply drafting Amendments in order to make it clear that references in Clause 17 to Clause 16—the insurance industry levies—should include references to Schedule 2 which is called up in Clause 16(11) and contains additional provisions with respect to the insurance industry levies. I hope that your Lordships will agree to these drafting Amendments.

Clause 18 [Application of general receipts by the Board]:

Lord BESWICK

My Lords, I beg to move Amendments Nos. 80 and 81.

Amendments moved—

Page 15, line 25, after ("any") insert ("arrangement made by the Board under subsection (7B) of section 13 above and to any")

Page 15, line 26, leave out ("section 13(8) above") and insert ("subsection (8) of that section").—(Lord Beswick.)

Clause 19 [Application of surplus funds by the Board]:

Lord BESWICK moved Amendments Nos. 82, 83 and 84:

Page 16, line 1, at end insert ("by order made by statutory instrument")

Page 16, line 5, leave out from ("subject") to end of line 9 and insert ("to such conditions as may be prescribed by the order")

Page 16, line 9, at end insert—

("(2) An order made under this section may make different provision for different circumstances and may be varied or revoked by a subsequent order so made.

(3) Any statutory instrument containing an order made under this section shall be subject to annulment in pursuance of a resolution of either House of Parliament.")

The noble Lord said: My Lords, I suggest we take Amendments No. 83 and 84 with Amendment 82. These Amendments are the Government's response to an Amendment proposed in Committee by the noble Lord, Lord Lyell, and provide that the Secretary of State's powers under this clause to require the Board to distribute their surplus funds should be exercised only by order, the order to be subject to Negative Resolution procedure. Amendment No. 83 provides that the Secretary of State may in the Order prescribe the manner and conditions of the distribution. I hope that will allay some of Lord Drumalbyn's fears which he expressed some time ago. This has the effect of subjecting to Parliamentary scrutiny and control not only the Secretary of State's power to require a distribution but also his power under the old wording to give directions about the manner and conditions of it. The Secretary of State will need to give the Board instructions about the formula for distribution, which might be the same as the formula for raising a levy in the same year or might have regard to the levy formula that was in operation in the year, or years, when the funds in question were originally raised. As an Order is legislation, albeit subordinate, the provision that the Board must act in accordance with the Secretary of State's directions is no longer necessary.

The new subsection (2) in Amendment No. 84 has been added to this clause as a result of the proposed deletion of references to Orders in Clause 23. The power for the Secretary of State "to make different provision for different circumstances" in Orders under Clause 19 is necessary as he may wish to require different distributions of general and long-term business funds. The standard provision to the effect that orders may be varied or revoked by subsequent orders has also been included here as a consequence of the proposed deletion of Clause 23(2). I beg to move.

Lord LYELL

My Lords, these three Amendments were specifically laid down in reply to queries which we raised at Committee stage. Our queries have been more than adequately answered, and we are grateful to the noble Lord.

Clause 20 [Overseas companies]:

Lord BESWICK

My Lords, I beg to move Amendments Nos. 85 to 88.

Amendments moved—

Page 16, line 17, leave out ("or in section 15(1)(b)") and insert ("section 15(1) or subsection (1) of section (Companies in financial difficulties; transfers of business, etc.)")

Page 16, line 17, leave out line 21 and insert ("provisional liquidation within the meaning of section 15 above or (as the case may be) as a company in financial difficulties for the purposes of section (Companies in financial difficulties: transfers of business, etc.) above")

Page 16, line 23, after ("15") insert ("or section (Companies in financial difficulties: transfers of business, etc.)")

Page 16, line 26, at end insert ("or section (Companies in financial difficulties: transfers of business, etc.)").—(Lord Beswick.)

Clause 23 [Orders and regulations]:

Lord BESWICK

My Lords, I beg to move Amendments Nos. 89, 90 and 91.

Amendments moved—

Page 17, line 10, leave out subsection (1).

Page 17, line 14, leave out subsection (2).

Page 17, line 20, leave out ("to make an order or").—(Lord Beswick.)

6.32 p.m.

Lord BESWICK moved Amendment No. 92: Page 17, leave out lines 24 to 27 and insert ("but shall only be exercisable after consultation with the Board")

The noble Lord said: My Lords, again this Amendment is intended to meet the criticisms or suggestions that were made at Committee stage. In Committee there was a query about the need for the wide powers apparently conferred by subsection (4) of this clause, and one purpose of this Amendment is to attempt to meet more than half way the criticisms that were made.

The power to include in orders or regulations under the Bill the "incidental, supplementary or consequential provisions" referred to in paragraph (b) of this subsection was included in the Bill mainly with regard to the power originally contained in Clause 3—but dropped in Committee—to bring members of Lloyd's within the scope of the Bill. Now that this power has been dropped, the Government feel that it would be unnecessary to retain the wide powers given in subsection (4)(b), and the Amendment accordingly proposes the deletion of this paragraph.

We are satisfied, however, that the power under paragraph (a) of the subsection to "make different provision for different circumstances" in regulations is both necessary and unexceptionable. The regulations under Clause 13(8) may, for example, need to contain different provisions for general business and long-term business policyholders, or for policyholders who receive assistance under different provisions of the Bill. For this reason, the Government feel it would be unwise to remove paragraph (a) of subsection (4) as well as paragraph (b). The inclusion in order-making or regulation-making powers of a power to "make different provision for different circumstances" is a common one; there are precedents—for instance, in Section 63(4) of the Civil Aviation Act 1971, and in Section 78(3) of the Insurance Companies Act 1974.

The other purpose of this Amendment relates to a point made by the noble Lord, Lord Aberdare, when discussing at Committee stage the Secretary of State's regulation-making power in Clause 11(7). On that occasion, before withdrawing his Amendment to delete subsection (7) of Clause 11, the noble Lord suggested that the power be made subject to prior consultation with the Board. I hope he will agree that this Amendment gives effect to just that request.

It seemed to the Government right at the same time to make the Secretary of State's other regulation-making power in the Bill—that in Clause 13(8)—also subject to prior consultation with the Board, and the Amendment has been drafted to achieve this. I hope that noble Lords will consider this a helpful suggestion, and I hope they will even go so far as to say that it is a very good Amendment that I now beg to move.

Lord DAVIES of LEEK

My Lords, I think it is good that the Secretary of State should limit the power of individuals. Nevertheless, if the phrase included in this Amendment—"only after consultation"—is inserted in the subsection, I understand that if he so wishes the Secretary of State need not take any notice of the consultation. The fact that one consults does not mean that one accepts the result of consultation. Therefore, the Opposition ought to be clear about the meaning of their Amendment. We went gratefully to their aid. Nevertheless, if you have a strong Secretary of State it leaves the position of the Secretary of State as it was—except, perhaps, that he serves democracy in so far as he has to take into account the whole gamut of affairs from the knowledge and expertise of the Board.

Lord ABERDARE

My Lords, despite the warnings of the noble Lord, Lord Davies of Leek, we are quite satisfied that this Amendment meets the points that were made by us. Once again, I should like to thank the noble Lord, Lord Beswick. My recollection is that one of these Amendments was moved by the noble Lord, Lord Balfour of Inchrye, and I am sure that he would like to be associated with me in thanking the noble Lord.

Clause 24 [Interpretation]:

Lord BESWICK

My Lords, I beg to move Amendments Nos. 93, 94, 95 and 96.

Amendments moved—

Page 17, line 43, at end insert— (""general policy" has the meaning given by section 8(4) above;")

Page 18, line 6, leave out from ("above") to end of line 8.

Page 18, line 9, leave out ("protected") and insert ("United Kingdom")

Page 18, line 10, leave out ("4") and insert

("(Protection confined to United Kingdom policies)")—(Lord Beswick.)

The LORD CHANCELLOR

My Lords, Amendment No. 97 was discussed with Amendment No. 56. I beg to move.

Amendment moved— Page 18, line 38, leave out subsection (6).—(The Lord Chancellor.)

Clause 25 [Short title and extent]:

6.28 p.m.

Lord REIGATE moved Amendment No. 98:

Page 18, line 45, at end insert— ("( ) This Act shall cease to have effect on 1st January 1981 unless the Secretary of State has, by order, substituted the date of 1st January 1986.")

The noble Lord said: My Lords, I can assure your Lordships that at this late hour I shall not detain you for very long. I do not think that those of your Lordships who have read the proposed Amendment will need much of an explanation. The Minister was so helpful at Committee stage, and has continued to be so helpful today, that I am hoping that I shall repeat the success I had on an earlier occasion and that he may find it possible to accept this Amendment.

I do not think that any Bill has ever reached the Statute Book which has been subjected to quite so much criticism as this one. Certainly it is a better Bill than it was when it first came before your Lordships. However, it is still a bad Bill, and I think one can say that it is not acceptable as a permanent feature of the Statute Book. I cannot refrain from expressing my regret that we did not accept the advice of the chairman of the Co-operative Insurance Society and vote against it on Second Reading, but for the reasons that were given at the time we found it impossible to do so. Equally, I regret that we did not refer it to a Select Committee, in which case I think that a Bill perhaps even better than this might have come before us for Third Reading.

In effect, I gave notice of this new subsection when I spoke on Second Reading. If I may quote my words to your Lordships, I said: If the Government, in bringing forward the Bill, had suggested that it was a stopgap measure until the 1974 Act could become fully operative, it would have had a not unsympathetic reception from your Lordships. It would have meant putting a time limit on its operation and the House would, rightly I think, have demanded more expedition in making the regulations under the very comprehensive 1974 Act".—[Official Report, 6/5/76: col. 257.] In effect, the new clause assumes that the insurance Act 1974 will be fully, operative and effective by 1981. If it is not, then the Minister will have to come before Parliament, explain why and ask for five more years in which to make it effective. During the Recess I took some trouble to take advice on, and to study, the 1974 Act, and I find it hard to believe that when that Act is fully effective the disasters, the reaction to which provoked this legislation, will not happen again. If I am wrong, then a new Insurance Act is necessary. I beg to move.

Lord WINTERBOTTOM

My Lords, the noble Lord, Lord Reigate, damns this Bill with faint thanks, but faint thanks are better than no thanks. This Amendment, as he has said, is similar in principle to that moved in Committee by my noble friend Lord Peddie. It is designed to make the protection scheme a purely temporary measure by placing a time limit on the operation of the protection scheme. I am afraid we still feel that the Amendment is unacceptable, for the reasons I gave when we discussed this matter at the Committee stage of the Bill.

The Amendment gives a slightly longer life to the Bill but the difference is only marginal. We believe that a cut-off date of this sort could cause serious practical problems and inequitable treatment to policyholders, if on the relevant date the Board were in the process of carrying out their duties in a particular case. We are reasonably confident that when tighter supervision arrangements are fully in force the Board will only rarely need to impose a levy, if at all. To this extent, therefore, we share the thinking lying behind this Amendment. However, I should like to repeat what I said in Committee, that no system of supervision, however strict, can be foolproof. Insurance is the business of taking risks and bad fortune and difficult economic circumstances may still unhappily cause an occasional failure. In these circumstances, I am convinced that the continuing protection scheme is necessary to carry out supervision. May I stress that the scheme is complementary to the supervision arrangements, and I am sure it is quite wrong to accept the proposal to abandon the scheme after a relatively short time. I hope I have convinced your Lordships.

Lord DAVIES of LEEK

I should like to take up about a minute of the time of the House. Although I know what is in the mind of the noble Lord, Lord Reigate, and I know that he has a depth of knowledge and a constructive approach to this matter, may I suggest that those of us who now have some notification of what is happening to patent law, company law and insurance law, know that all these things are in a state of flux in the Common Market. I voted "No" in the referendum; nevertheless, the nation having given such a majority we shall be forced to try to make a success of what is happening. Therefore, company law, patent law—particularly in the pharmaceutical world, of which I know a little—and insurance law are in a state of flux. Therefore, would not that be a warning or caveat in regard to our own laws, making it unnecessary to put down in black and white in the Bill the phraseology suggested by the noble Lord opposite.

Lord WINTERBOTTOM

My Lords, once again my noble friend Lord Davies of Leek has come to my aid. May I ask the noble Lord, Lord Reigate, whether he is willing to withdraw his Amendment?

Lord REIGATE

My Lords, I have not heard any arguments that really convince me that my Amendment is not an extremely good one. The noble Lord, Lord Winterbottom, said it was too short a term but that it was longer than that proposed by the noble Lord, Lord Peddie. He did not give an alternative term. I should have preferred his reaction to have been to accept my Amendment and, bearing in mind that this Bill has to go to another place, to leave it to them to fix a more suitable term.

Coming to the arguments of the noble Lord, Lord Davies of Leek, I thought if there was one thing which could not possibly be dragged into this debate in regard to this Amendment it was the issue of the Common Market. However, although the referendum is over, I can see that we shall still have it dragged in on every possible occasion. I rather regret it because I think this is going to be the kind of Act which will clutter up the Statute Book and will ultimately have to be removed by the Law Commission or by a consolidation Act, perhaps not for some time to come.

During the Second Reading debate my noble friend Lord Aberdare said it was an unnecessary Bill, and when it is through all stages I think he will probably continue to say that it will be an unnecessary Act. I had hoped that I might have his support in limiting the life of this unnecessary Act, but in the absence of any support I beg leave to withdraw my Amendment.

Lord DAVIES of LEEK

My Lords, in defence of myself, I meant no scornful representation at all about the Common Market. The fact is that all these things—

Lord BESWICK

My Lords, I wonder whether I might call the attention of my noble friend to the fact that this is the Report stage and he can speak only on one occasion.

Amendment, by leave, withdrawn.

6.45 p.m.

Lord BESWICK moved Amendments Nos. 99, 100 and 101:

Page 19, line 10, after ("directors") insert ("chief executives")

Page 19, line 22, after ("director") insert ("chief executive")

Page 19, line 23, after ("director") insert ("chief executive")

The noble Lord said: My Lords, with this Amendment I suggest that we should take also Amendments Nos. 100 and 101. The purpose of these Amendments is to include chief executives within the categories of insurance company officers from whom three of the Board's members will be appointed. This change has been requested by the industry; without it an important section of senior insurance company management would have been ineligible for appointment to the three company seats on the Board. The term "manager", as defined in Section 7 of the Insurance Companies Act 1974, excludes a chief executive; and many chief executives are not directors of their companies. On the other hand, in our view, the category of "controllers", as originally suggested by the noble Lord, Lord Aberdare, would have been too broad; a controller could, for example, be a managing director or chief executive of a holding company who had no direct managerial responsibility in an insurance company. Without going quite so wide as the noble Lord, Lord Aberdare, suggested, I hope he will agree that this is an improvement. I beg to move.

Lord ABERDARE

I am very grateful, my Lords.

Lord WINTERBOTTOM moved Amendment No. 102:

Page 19, line 27, at end insert— ("(5) The Secretary of State shall consult persons appearing to him to be representative of the interests of authorised insurance companies before appointing a person who is a director, chief executive or manager of an authorised insurance company to be a member or alternate member of the Board.")

The noble Lord said: My Lords, the purpose of this Amendment is to require the Secretary of State to consult persons appearing to him to be representative of the interests of authorised insurance companies before appointing the company members of the Board. The Government undertook in Committee that an Amendment would be tabled to this effect. When the Secretary of State consults such persons, it goes without saying that he will have regard to their opinions that "consultation" means something more than just listening. There is therefore no need for this point to be specified in the new sub-paragraph. I beg to move.

Lord ABERDARE

My Lords, this was a point which we made at the Committee stage and I am grateful to the noble Lord, Lord Winterbottom, for having included it in this Amendment to the Bill. It is a very important paragraph. The fact that the majority of the members of the Board will be drawn from the insurance industry and will be people whose names have come forward as a result of consultation by the Secretary of State, in my view gives a tremendous reassurance to the insurance industry that the Board will act highly responsibly. I think this is most important, particularly in connection with the new clause which was moved in under Amendment No. 62, by which the members of the Board will be in a majority from the insurance industry. I am very grateful for this Amendment.

The LORD CHANCELLOR

My Lords, Amendments 103 and 104 were discussed with Amendment No. 4. I beg to move.

Amendments moved—

Page 21, line 34, leave out ("at risk") and insert ("in financial difficulties")

Page 21, line 35, leave out ("16") and insert ("(Companies in financial difficulties: transfers of business, etc.)").—(The Lord Chancellor.)

6.50 p.m.

Lord BESWICK moved Amendment No. 105:

Page 22, line 29, leave out from ("audited") to end of line 30 and insert ("by auditors appointed by the Board.

(2A) A person shall not be qualified to be appointed as auditor by the Board under subparagraph (2) above unless he is a member of one or more of the following bodies

• the Institute of Chartered Accountants in England and Wales;
• the Institute of Chartered Accountants of Scotland;
• the Association of Certified Accountants;
• the Institute of Chartered Accountants in Ireland;
• any other body of accountants established in the United Kingdom and for the time being recognised for the purposes of section 161(1)(a) of the Companies Act 1948 by the Secretary of State;

but a Scottish firm may be so appointed if each of the partners therein is qualified to be so appointed.")

The noble Lord said: My Lords, the purpose of this Amendment is to specify in the Bill those persons who are qualified to be appointed as auditors by the Board, instead of leaving the matter to the direction of the Secretary of State. The change will not, of course, have any effect in practice on the persons likely to be appointed as auditors, but an Amendment along these lines was requested by the Consultative Committee of Accountancy Bodies and we are happy to comply with their wishes. The drafting of the new subsection follows recent precedents, for example Section 53(2) of the Civil Aviation Act 1971. There is another precedent, which I hesitate to mention, in Section 19(2) of the Maplin Development Act 1973. I hope that despite that noble Lords will accept this Amendment. I beg to move.

Lord LYELL

My Lords, as a member of one of the bodies referred to here, I am sure I speak for the Consultative Committee of Accountants when I say we are very grateful that the noble Lord has brought this Bill into line with the Companies Act.

Schedule 2 [Additional provisions with respect to the insurance industry levies]:

Lord BESWICK moved Amendment No. 107: Page 23, line 26, leave out ("31st January") and insert ("1st March").

The noble Lord said: My Lords, with this Amendment I should like to speak to Amendments Nos. 108 and 109. The purpose of these Amendments is to extend the time allowed to companies for submitting their statements of income liable to levy. When this point was raised in Committee, my noble friend Lord Winter-bottom explained that the Government were sympathetic to the idea of an extension, but that the end of March would be too long and be liable to delay the Board's ability to raise a levy. The industry have agreed that 1st March will give companies adequate time to prepare their returns, and these Amendments are moved accordingly. I beg to move.

Lord BESWICK

My Lords, I beg to move Amendments Nos. 108 and 109.

Amendments moved—

Page 23, line 27, leave out ("31st January") and insert ("1st March").

Page 23, Line 31, leave out ("31st January") in both places and insert ("1st March").—[Lord Beswick.)

Lord BESWICK

My Lords, I beg to move Amendment No. 110. As noble Lords will appreciate, this is purely a drafting Amendment. The words "that Act" occur twice in sub-paragraph (3) of paragraph 5, and it must therefore be made clear that the definition in subparagraph (5)(b) of the paragraph applies to both references.

Amendment moved— Page 24, line 28, after ("Act") insert ("in both places where they occur").—(Lord Beswick.)

Lord BESWICK moved Amendment No. 111: Page 25, line 3, leave out ("and").

The noble Lord said: My Lords, with this Amendment may I speak to Amendment No. 112. In Committee I accepted the principle that the Board should be required to specify the purpose for which any levy is being raised. The new subparagraph (c) gives effect to that principle. If the levy is being imposed in respect of a particular company, it will of course be necessary for the Board to name the company in order to comply with this provision. But it may be that a levy will not relate to a particular company—it may be raised to meet the Board's administrative expenditure—hence the general terms in which the Amendment is drafted. Nevertheless, I hope that this will be acceptable. I beg to move.

Lord DRUMALBYN

My Lords, without appearing to be unduly pessimistic, may I suggest that it would be better "for all purposes for which the levy is being imposed."? There might easily be more than one purpose, and as the noble Lord has suggested they might come at the same time.

Lord BESWICK

My Lords, maybe I will end this stage as I began the Committee stage, by saying that I have listened to all constructive suggestions but that is not one and there are others for the next stage.

Lord ABERDARE

My Lords, I should like to thank the noble Lord for this Amendment which will be welcome. May I say once again, at the end of this long series of Amendments, that this has been a very happy birthday for me. The noble Lord has given me many acceptable gifts. We thank him and the noble Lord, Lord Winterbottom. We were extremely critical of the Bill when it appeared at Second Reading, but thanks to the discussions that have gone on meantime it has been enormously improved and has come very much closer to the kind of scheme that the industry had in mind as a possible voluntary scheme. Therefore, it is now a Bill that has many worthwhile aspects to it. We have managed to improve it very greatly. Although I should like to thank those people who have contributed to the constructive amendments of the Bill, I should also like to thank the noble Lord for the flexibility he has shown in accepting Amendments and bringing forward a great many which have met a number of the points we raised in Committee.

Lord BESWICK: My Lords, I beg to move Amendment No. 112.

Amendment moved—

Page 25, line 5, at end insert ("and (c) the purpose for which the levy is being imposed.")—(Lord Beswick.)