POLICYHOLDERS PROTECTION BILL [H.L.] (Hansard, 20 May 1975)

HL Deb 20 May 1975 vol 360 cc1191-275 1191

§ 3.0 p.m.

§ The MINISTER of STATE, DEPARTMENT of INDUSTRY (Lord Beswick)
My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.

§ Moved, that the House do now resolve itself into Committee.—(Lord Beswick.)

§ On Question, Motion agreed to.

§ House in Committee accordingly.

§ [The EARL OF LISTOWEL in the Chair.]

§ The CHAIRMAN of COMMITTEES (The Earl of Listowel)
The Question is, That the Title postponed

§ Moved, That the Title be postponed.—(The Earl of Listowel.)

§ Lord CACCIA
At this point, may I ask a purely procedural question on the Title about the wording? In the third line of the Title of the Bill there are the words, "policyholders and others ", and I notice that there is an Amendment proposed to Clause 1 to omit those words. I should like to ask, simply as a question of procedure, if that Amendment and the further Amendment of a like kind to Clause 3 are carried, will there be a chance on a question of drafting to make any amendment to the Title that might be required in such a case?

§ Lord BESWICK
That is the purpose of delaying consideration of the Title.

§ On Question, Motion agreed to.

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§ Clause 1 [The Policyholders Protection Board]:

§ Lord ABERDARE moved Amendment No. 1: Page 2, line 2, leave out ("others") and insert (" security holders").

§ The noble Lord said: I beg to move Amendment No. 1, but may I declare my interest, as I did at Second Reading? I am a director of a small life insurance company and I am also a member of Lloyd's. Throughout this Bill we shall be seeking to limit its application to policyholders, and in particular to private policyholders in most cases, and we are anxious that no protection as a result of the levy that can be imposed on companies shall be used for the protection of other people; for example, trade creditors or shareholders. Therefore, we have tabled this Amendment to discover, as the noble Lord, Lord Caccia, has already, adumbrated, what these words and others "really mean.

§ So far as I can see, the only category of person other than a policyholder who should be protected under the Bill is what is called later on a "security holder In Clause 3(1) of the Bill, reference is made to policies issued by insurance companies or securities given by them, and it would therefore appear that the only category of person who should be protected by the Bill other than the policyholder is the so-called security holder the most commonly familiar example being the case of a cover note for motor insurance where there does not yet exist a policy, or where the policy is being drawn up and a cover note is issued. Therefore, we suggest that the Bill should be rather more tightly drawn and should here refer to assisting or protecting policyholders and security holders, rather than "and others". I beg to move.

§ Lord CACCIA
I also wish to declare an interest as a director of an insurance company, and to support what the noble Lord, Lord Aberdare, has said, not only on the precise grounds which he has given but also on the more general ground that it is surely not desirable in any circumstances to leave words so vague at this stage of a Parliamentary Bill, and that some attempt should be made rather more closely to define what might be meant by "and others"

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§ Lord BESWICK
I will see whether I can help on this point. However, as this is the first Amendment and the noble Lord, Lord Aberdare, indicated that we were looking forward to a constructive Committee stage, I should like to say that that is my wish also. I hope that we can establish in Committee the points of difference between us and then, if it is possible to meet them, I hope that in the main we shall come to them at Report stage. In certain cases the Amendments were placed on the Marshalled List rather late; indeed, in one or two cases I personally did not see them until today and certainly I have not had advice upon them. So it would be particularly helpful if at this stage we could set out exactly what it is that we have to deal with, and then I am sure that my right honourable friend and ourselves will see what we can do to help.
I should have liked to be able to accept this Amendment to start with, in order to set a precedent, but I do not really think it is necessary and I will state my reason. The facts seem to be these. The term "policyholder" is defined under Clause 25(2) by reference to the definition in Section 85(1) of the Insurance Companies Act of 1974, and therefore includes, in the case of annuities, annuitants, and in the case of any other insurance contract, any, person to whom under a policy a sum is due or a periodic payment is payable ". The policyholder therefore normally covers not only the holder of a policy in the narrow sense, but third parties who are entitled to benefits under the terms of the policy.
The others—and the noble Lord, Lord Caccia, asked me who these people were —besides policyholders who need to be covered (and I do not think there is anything between us as to the need here) by this subsection are not only, first, holders of securities given by authorised insurance companies in respect of compulsory insurable liabilities under the Road Traffic Acts, but also, secondly, persons entitled to the benefit of a judgment under Section 149 of the Road Traffic Act 1972, or the equivalent Northern Ireland provivision, and I give an assurance that the present wording is adequate. If anyone can put forward a formula that will improve on this wording I will consider 1194 it, but I am advised that what we have is sufficiently tight.
There is no risk of others, such as ordinary creditors or shareholders, being entitled to the Board's protection by virtue of this phrase. We shall come to the question of the shareholders and one or two other classes of persons later in the Bill, and I hope we can look at the other provisions to see whether the words are sufficiently tight. Here, at any rate, my advice is that the wording as of now limits the protection in the way in which I think the noble Lord, Lord Aberdare, and the noble Lord, Lord Caccia, would wish. So far as the ordinary creditors or shareholders are concerned, they would not be protected since they would not have been …prejudiced in consequence of the inability of insurance companies …to meet their liabilities under policies issued …by them". That, in the view of my advisers, gives the protection required and on that assurance I hope it will be possible to withdraw this Amendment.

§ Lord ABERDARE
I am grateful to the noble Lord, Lord Beswick, for the cooperative spirit in which he is approaching these Amendments, and for what he said at the beginning of his remarks. Certainly, we are only too anxious to obtain a good Bill. I listened with interest to what he said on the subject of the Amendment itself, but I think it would be as well if I were to read carefully the report of what he said. It seemed to me that the only people whom I have not taken into account in putting in the security holders were those persons who were entitled to the benefit of a judgment, and whether it would be worth putting them in specially or whether, with the assurances the noble Lord has given, "others" in the context does not go any wider, I think we shall have to consider again. Therefore, at this stage I beg leave to withdraw the Amendment.

§ Amendment, by leave, withdrawn.

§ 3.10 p.m.

§ Lord PEDDIE moved Amendment No. 2: Page 2, line 15, leave out subsection (3).

§ The noble Lord said: I beg to move Amendment No. 2. This is the first of a long series of Amendments. I shall attempt to be as brief as possible in 1195 dealing with each of them because I do not desire to weary the Committee. The noble Lord, Lord Beswick, will be aware of the comments made at Second Reading which indicated, in a clear and convincing manner, the opinion of the House that there was something fundamentally wrong with the Bill. The first reaction of some of my noble friends and myself was that the Bill should be opposed and something entirely different produced in its place. However, we have proceeded along a different route. We have attempted to deal fundamentally with the Bill, and we hope that the long series of Amendments presented to this Committee will be able to deal with a number of points raised during the Second Reading debate and, in consequence, give even greater protection to the policyholder and avoid at least some of the injustices and deficiencies apparent in the Bill.

§ The first Amendment deals with the question of borrowing powers. The levy is limited to 1 per cent. of premium income, for the purpose, no doubt, of placing a limit on the charge on sound insurance companies. In practice, of course, it is a charge upon the policyholders, not the companies. However, Clause 1(3) gives unlimited borrowing powers to the Board so that if there is a serious insurance company failure the Board can meet the cost of the guarantee by borrowing, if one year's levy is not sufficient. The industry would then have to pay levies in future years, possibly for quite a long period of time, in order to enable the Board to repay the loan. This largely defeats the purpose of the limitation on the amount of the levy. In point of fact, the Board do not need borrowing powers, because they have the power under Clause 13(16) to postpone payments. But if they have borrowing powers, there is no doubt that they will be under heavy pressure, should any serious failure occur, to use their borrowing powers and not to postpone payment. Therefore, in moving this simple Amendment, I believe it will place a certain restriction on the Board which will be in the best interests of all concerned. I beg to move.

§ Lord BESWICK
Here again, it would have been nice to begin by accepting the Amendment on the Marshalled List, but I cannot do that, for reasons which 1196 I hope will be acceptable. I hope I can meet the undoubtedly genuine anxiety expressed by the noble Lord, Lord Peddie. Certainly it would be wrong to give the Board unlimited borrowing powers; I accept that. But let us look at the situation that they have to face. As the noble Lord rightly says, the main source of income will be the levies, but this power to borrow may well be required in those cases where there is nothing in the kitty. There has been no levy, certain expenses have been incurred, possibly administrative expenses. and then one would have to go through the whole paraphernalia of levying the whole industry, when it would be cheaper for all concerned to have the power to borrow.
The noble Lord also said that there were powers under parts of the Bill to postpone the payment of benefit, and as benefits or rescue operations and payments could be postponed, there would be no need to borrow until such time as the levy provided the necessary money to enable the operation to be carried through. It might well be that there was a need to pay out some moneys, and if there were a delay, if the power later in the Bill were used to delay payments, it could mean hardship. Therefore, it is thought that it would be advisable, and could be more economic, to give the Board the power to borrow.
May I say at this point that on the Marshalled List I have put down Amendments Nos. 82 and 83 to spell out the composition of the Board. As will be seen there, the Board will be composed of a majority of members from the industry, so that the persons who will decide whether it will be economic to borrow in fact will be the persons whom the noble Lord has in mind, whose interests he wants to protect. At the same time, I can see that to have in the Bill apparently unlimited powers to borrow is wrong. I suggest we put some limit on the borrowing powers. If the noble Lord would withdraw the Amendment, we could have discussions and agree on a limit and insert that in the Bill on Report stage.

§ Lord PEDDIE
I appreciate very much the comments made by my noble friend. At this stage, I will certainly not argue in terms of replying to one or two of the points he made. I do not feel that 1197 the curtailment or restriction of borrowing powers would affect the efficient operation of the Board. However, I believe that my noble friend has gone quite a long way along the road, and I welcome the opportunity of further discussions with him on this matter. In consequence, I beg leave to withdraw the Amendment.

§ Amendment, by leave, withdrawn.

§ Clause I agreed to.

§ Clause 2 [Guidance to the Board by the Secretary of State]:

§ On Question, Whether Clause 2 shall stand part of the Bill?

§ Lord ABERDARE
As was obvious in the course of speeches on Second Reading, one of the main complaints we have about this Bill is that it gives considerable powers to the Secretary of State to interfere with the working of the Board. Here in Clause 2 is the first example with which we are not satisfied. The clause says: …the Secretary of State may from time to time give guidance to the Board in writing with respect to the performance of any of their functions …and it shall be the duty of the Board to perform the functions in question in such a manner as they consider is in accordance with the guidance … In other words, the Secretary of State speaks, and the Board has to obey.
As the noble Lord, Lord Beswick, has said, he has two very important Amendments later on, Nos. 82 and 83, which define more closely the constitution of the Board and which fulfil the undertakings given at the Second Reading that the majority of the members would be drawn from the industry. One imagines that this Board will be a highly responsible Board, with people of great experience, so it would not seem right that the Secretary of State should have this power to act like a governess and give them guidance. The noble Lord may tell me that subsection (2) says that the guidance has to be approved by a Resolution of each House of Parliament; but though that is some safeguard it still does not seem to us to be a very satisfactory one. One cannot ever amend an Order of the sort that requires Affirmative Resolution, and it still seems to us to be unnecessary interference with the Board, 1198 which is perfectly capable of managing its own affairs. I believe the Bill would be greatly strengthened, without any damage to its underlying principles, if we were to omit this clause.

§ Lord CACCIA
May I support what the noble Lord, Lord Aberdare, has said, and express the hope that the noble Lord, Lord Beswick, will be ready to look at these arguments before we come to the Report stage. He has already indicated that he is ready to consider arguments now put forward. I would add one other thing. Not only is it surely slightly derogatory of a Board to be constituted of highly reputable people, but also there is in the background the legislation passed in the Act of 1973. It has not become fully operative yet, but a number of regulations under it have already been brought into force and others are under consideration and will shortly be brought forward. The Department and the Secretary of State already have considerable powers and will have further powers. In these circumstances, is it really necessary to give him such an overriding grant of power as indicated in Clause 2 of the Bill? May I ask the noble Lord to reconsider this clause, bearing that in mind?

§ Lord PEDDIE
I have a great deal of sympathy with the point of view expressed by Lord Aberdare. From my standpoint, I find it difficult to envisage what kind of guidance there is likely to be. One can move easily, by one step, from guidance to direction, and direction would, in my opinion, unquestionably be wrong. Therefore I should be glad if my noble friend would give some indication to the Committee as to what is precisely meant by the term "guidance ".

§ The Earl of ONSLOW
May I ask the noble Lord a question on this particular clause? First, I must declare an interest, being connected with an insurance broking company and also an under-writing member of Lloyd's. The EEC Freedom of Establishment Directive conies in, I believe, on the 16th February next year. Would these instructions issued to the Board have a bearing on that particular factor, or would it come up later on in the Bill? I do not quite understand. I should like elucidation from Her Majesty's Government.

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§ Lord DRUMALBYN
It might help the noble Lord if I asked him this question now. I wonder whether he could also explain, when he answers, exactly what is meant by …guidance …with respect to the performance of any of their functions … This could be taken to mean that the guidance was to be as to how the functions were to be performed in general, not as to what the Board should do in any particular case. If it is the former, why cannot it be put in the Bill as to how they are to perform their functions in general; and if it is the latter, I am bound to say that I agree with my noble friend Lord Aberdare that this would hardly be consonant with an independent Board.

§ Lord SLATER
Listening to the observations and comments so far, one begins to wonder what Lord Aberdare and his colleagues see as the position of reputable people who will be appointed to this Board. Who can at this juncture discern or specifically state the type of individuals who will be appointed? What is reputable so far as the people to be appointed to the Board are concerned? Only one person can appoint them, the Minister himself; that will be the determining factor as to who will constitute the Board. There seems to be a suspicion in the minds of those who have opposed the clause that the Minister will put this Board in chains, and that they will not be at liberty to make recommendations or take decisions. I think noble Lords are under a misapprehension if that is their view. I think the noble Lord, Lord Aberdare, and his colleagues who have spoken on this matter, ought to give it further study before they seek to delete this clause.

§ Viscount SIMON
I wonder whether I might take up the point made by the noble Lord. Lord Peddle. He said, as I understand it, that he felt that guidance might be all right, but not direction. I cannot really see the difference between guidance which the Board are required to follow and direction. It seems to me to be only a matter of words.

§ Lord REIGATE
Before the noble Lord replies, may I raise one point. The mailed fist in Clause 2(2), to implement the velvet glove in Clause 2(1), presupposes that there will be a Resolution before this House. This. I presume, could 1200 arise only in the case of a disagreement between the Secretary of State and the Board as a whole. I merely ask: how, and in what way, would it be proper for the House to be informed of what was an opinion contrary to that held by the Secretary of State?

§ Lord BALFOUR of INCHRYE
Can the Minister explain the difference between "guidance" and "direction "? Several noble Lords have asked for that clarification. The phraseology is as follows: …and it shall be the duty of the Board to perform the functions in question in such a manner as they consider is in accordance with the guidance for the time being given to them…. Subsection (2) says, …a draft of the document containing it has been approved by a resolution of each House of Parliament. As I read it, that does mean that guidance is in fact direction. Perhaps when the Minister replies he will make clear the distinction that he sees between guidance, as put in the Bill, with all the stipulations that must be followed, and direction. If it is direction, then you are making the Board nothing more than a puppet of the Minister.

§ Lord ROBBINS
We are dealing in abstractions. May I humbly suggest to the noble Lord, Lord Beswick, that in his reply he would help those of us who have not made up our minds if he would furnish us with a concrete example of what is meant by "guidance ".

§ Lord HOUGHTON of SOWERBY
I find this an extraordinary clause. The first subsection provides for guidance to be given—not a direction, but guidance. I am not sure whether guidance has previously occupied any place in an Act of Parliament of this kind. It then says: …it shall be the duty of the Board to perform the functions in question in such a manner as they consider is in accordance with the guidance for the time being given to them in pursuance of this section. Then subsection (2) provides that the guidance shall not be effective unless it is approved by Resolution of each House of Parliament. So this is what is called an Affirmative Order, a Statutory Instrument. It is a strange Statutory Instrument that requires the authority of both Houses of Parliament to give guidance. After all, a Statutory Instrument is an 1201 Act of Parliament. It has the effect of legislation. It is delegated legislation. We do not delegate guidance, we delegate the power to give directions. This is a sloppy clause because it does not say what it means. It means direction, but it is hidden behind the word "guidance". The Minister ought to explain to the Committee what exactly this clause is designed to achieve.

§ 3.31 p.m.

§ Lord BESWICK
May I say just a word at this stage—probably the Committee will excuse me—because shortly I have to leave for a few minutes. First of all, about the sloppiness of the legislation, with great humility and friendship to my noble friend, may I say that the clause is modelled on another Act which he himself, in another capacity in the other place, apparently allowed to go through. The Civil Aviation Act 1971 has these words in Section 3(2) and (3), and the words have been taken from there. Having said that, and having confirmed that that "sloppy" clause got through another place in which my noble friend was a Member, and having established the bona fides of the wording, may I say that I agree with what has been said, in that this appears to go much further than is intended. I accept that.
The noble Lord, Lord Robbins, asked me which cases we had in mind. Oddly enough, and in all sincerity, as a matter of fact those who drafted the clause thought that they were helping the proposed Board. It was not intended to carry out any sinister purpose of frustrating the Board; it was in order to give them the sort of authority or guidance which they might require in a given situation, such as in the use of borrowing powers under Clause 1(3), on the use of their power to give interim assistance to policyholders of companies in financial difficulties under Clause 15(2), and then the question of the criteria for deciding whether, and if so how, to use the power of rescue in Clause 16. If there were a particularly virulent and vociferous campaign against the Board it was thought that it might be helpful to offer guidance from the Secretary of State.
I can understand that doubts have arisen. My own view—and I express only a personal view here, but it will be a personal view that will be conveyed in 1202 other quarters—is that if at any rate the guidance were issued after consultation with the Board, that would have gone a long way. Some of those who have said what has been said here probably wish to go further, and certainly I should be prepared to consider what they may say. I accept that there is here a legitimate criticism.

§ Lord MOLSON
The noble Lord, Lord Beswick, has so completely accepted the criticisms that have been made from all parts of the House of the drafting of this clause that I should have thought that the simple thing would be for him to accept its excision at this present stage and not to discuss the matter further at the Report stage. If, after further consideration, it is thought that something additional needs to be added after this clause has been deleted, it would be possible for the Government to bring forward an Amendment at the Report stage. After what the noble Lord has said, I think that there is a clear case for the Government throwing out this particular clause. The noble Lord has personally accepted the propriety of doing so.

§ Lord BYERS
It is quite clear that in the course of the Committee stage we are going to find a number of points upon which there will be a genuine difference of opinion. In this House there is a great deal of good will to try to turn this Bill into something which is workable and acceptable. I wonder whether the noble Lord at some point could indicate the form of consultations which might take place between the Committee stage and the Report stage, perhaps through the usual channels, so that we shall know exactly where we stand when we come to try to get this Bill right at the next stage.

§ Lord BESWICK
I have not a formula now as to how I could conduct a negotiation, because not all the quarters of the House have the same interest in all sections of the Bill. One way or the other we will see that there is proper consultation. What I was going to say—I was almost going to be unkind—was that if the noble Lord, Lord Molson, wishes to display his virility and say, "Let us accept this and leave the onus on the Government to bring forward an amended clause" I should be quite happy. We could do it either way. It would be 1203 tidier if we left the Bill as it is and either I undertook to brine forward an Amendment or, if the noble Lord wished after consultation to have an Amendment, he could seek to move it. It is a question of procedure. I think that the objective is the same.

§ Lord ABERDARE
I am grateful to the noble Lord for the practical co-operation that he has shown on this matter. Knowing that his undertakings are worth a lot, I am perfectly willing to accept that he would be prepared to produce an Amendment at Report stage, and I do not insist on the clause coming out if he is prepared to put in another Amendment. I welcome what was said by the noble Lord, Lord Byers. As the Bill goes through its clauses today, I hope that if we come to particularly difficult clauses it will be possible to have consultations between the Committee stage and the Report stage.

§ Lord ALDINGTON
I hope not to differ with my noble friend, but there are some of us who think that there is no way of amending this clause. The only way to deal with the matter, which is an important one and relevant to the procurement of good people to serve on the Board, is to delete this clause altogether. It is my experience that guidance from a Minister supported by the kind of statutory power that is envisaged in this clause will lead to a lot of wrong decisions being taken by the Board. Of course, any Minister is able to talk to a Board that he has set up. If he talks and gives a point of view, that is one thing, but if he gives that point of view with the knowledge that it can be backed with a Statutory Instrument, that is another thing, and is equivalent to direction, whatever you may call it. Whether the Act was passed when noble Lords on this side of the House were sitting on that side of the House or not does not matter to me. It seems wrong and to threaten the whole value of the Board, and indeed the Government's ability to get good people to serve on it. I should like to see nothing short of this clause being excised.

§ Lord BYERS
May I follow what the noble Lord, Lord Aldington, has said by saying that, while in no way disagree- 1204 ing with the contents of his remarks, I think this is a procedural matter. In the light of the undertaking given by the Government at Committee stage, one should allow the Government to have their way, because we can always delete the clause on Report stage. I think we should just be making heavy weather for the Government if we had to renumber the Bill and all the rest of it.

§ Lord WINTERBOTTOM
I am grateful to the noble Lord, Lord Byers, for his helpful intervention. The depth of knowledge of the noble Lord, Lord Aldington, is such that we must naturally pay attention to what he says. The noble Lord, Lord Aberdare, has responded generously to my noble friend's offer. May I, to wind up, make two points in answer to two questions which have not yet been answered? The EEC legislation will not affect our deliberations today, or in any way the Act that will be produced. That is the first point.

§ The Earl of ONSLOW
When this EEC Directive comes about, could the noble Lord clarify whether we then must have Amendments to this Bill, or a new Bill, as a result of it?

§ Lord WINTERBOTTOM
I will write to the noble Earl. I am certain that the Scrutiny Committee of this House will keep an eye on it in view of the attention which the noble Earl has drawn to this particular possible, though we believe not real, dilemma. The noble Lord, Lord Reigate, asked if there were disagreement between the Secretary of State and the Board, how the disagreement would be brought to the notice of this House when it came to debate the Resolution placed before it under this particular clause. I can only assume that when the Order was tabled the Minister responsible would inform your Lordships why that particular Order was being tabled. In any case, if the Board are really representative of the industry, I am certain that your Lordships have enough expertise to know what the problem is and what the argument is about, and that should this situation arise and an Order be brought before your Lordships' House we will have an informed debate on the subject.

§ Clause 2 agreed to.

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§ Clause 3 [Authorised insurance companies]:

§ 3.41 p.m.

§ Lord REIGATE moved Amendment No. 4: Page 3, line 5, leave out subsection (3).

§ The noble Lord said: I beg leave to move the Amendment standing in my name and that of the noble Lord, Lord Aldenham. I must begin as others have done, by declaring the same interest in that I too am an underwriting member of Lloyd's. May I add that I have no expertise and that although I am a member I have no authority to speak for anyone on Lloyd's other than myself. Even if I were not an underwriting member of Lloyd's I should still, on principle, have moved this Amendment. I spoke on this matter on Second Reading and endeavoured to point out to your Lordships that I could see no reason whatever for including Lloyd's in this Bill. I do not want to repeat the arguments that I used then, but I think it is fair to say that built into their constitution Lloyd's have safeguards and rules for the benefit of policyholders which are far in excess of anything done by any other section of the insurance industry. For that reason I cannot see why they should have the shadow of the sword of Damocles hanging over their head.

§ I had hoped that before I came to move this Amendment in Committee I should at least have had some cogent argument by the Government in favour of its inclusion to refute, but no mention was made of Lloyd's either in the speech of the noble Lord who moved the Second Reading, or, with respect, by the noble Lord who replied on that occasion; therefore, so far I have nothing to refute. Turning to subsection(2), I should like to echo all those arguments raised on Second Reading and in another context today against the method by which we are continually adding to the Statutory Instrument powers of the Secretary of State. Apart from the merits of the Bill, I certainly feel that to extend this Bill to Lloyd's would demand something more than a Statutory Instrument; it would be worthy—if "worthy" is the word—of legislation on its own.

§ Lloyd's is covered by the 1974 Insurance Act, which merely endorses what are already the house rules of Lloyd's.

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§ Obviously, I should like to see this Amendment accepted and Lloyd's totally excluded. If at any stage it was thought necessary to include Lloyd's, I think at the very least it would be worthy of a separate piece of legislation. I think perhaps the Minister does not appreciate the international nature of Lloyd's business, and the effect of including it might be very serious in the international sphere. I beg to move.

§ The Earl of ONSLOW
I support my noble friend Lord Reigate and would add one further point about Lloyd's. Lloyd's policyholders are protected by the Committee of Lloyd's. Included in that cover are not only the United Kingdom policyholders but also the reinsurance policyholders; the policyholders of a factory, say, in Nigeria; the aviation policyholders, and the marine policyholders. Therefore I think one can with great justification say that the policyholders in Lloyd's are better protected than by anything foreshadowed in this Bill.

§ Lord BALFOUR of INCHRYE
I should like to support my noble friend Lord Reigate on two grounds. First, there is the fact that bringing in Lloyd's is far too important a matter to be dealt with by Affirmative Resolution. Many of your Lordships who have been in another place know the Affirmative Resolution procedure. The Government bring forward the Resolution, usually rather late at night with a tired House; it is unable to be amended, it has to be taken or left. I believe that a subject so important as bringing in Lloyd's is worthy of amending legislation. My second point is that Clause 3(3) states, as is said in other parts of the Bill, the power of the Secretary of State—it is always in brackets— (including provision by way of amendment of this Act)" I think that is a very much wider power than it is usual to put into Bills.
I have been to some trouble to find examples of amendments to Acts by Statutory Instrument, but I cannot find any power given to a Minister to amend an Act in this form. It is true that the Children and Young Persons Act allowed a transitional provision to be altered by Statutory Instrument; it is true that the Criminal Justice Act 1972 allowed the substitution of a different sum for a sum 1207 set out in one section; it is true that the Water Act 1973 allowed the Minister to vary the membership of regional water authorities; it is true that the Trade Union and Labour Relations Act 1975 allowed for the substitution of larger sums than those set out in a certain paragraph in that Act. Therefore, I think the Committee would agree that the precedents I have quoted cannot really be compared to the very wide power which the Government seek in this Bill, of allowing the Minister by Statutory Instrument to amend the Act in virtually any way he wants. I hope that the Government will not try to hold to this very wide power of amending the Bill, relying on the Statutory Instrument Affirmative Resolution procedure, but will realise that they are asking for the Executive to have too much power over the Legislature.

§ Lord DRUMALBYN
May I support my noble friend Lord Reigate, and may I also ask the noble Lord who is to reply whether my noble friend was right in saying that the 1974 Act already covered Lloyd's? Section 2 of that Act reads— No person shall carry on in Great Britain insurance business of a class relevant for the purpose of this Part of this Act, other than industrial insurance business, except …a member of Lloyd's, or of any other association of underwriters approved for the purposes of this Part of this Act by the Secretary of State …". I would suggest to my noble friends that that is yet another reason for not giving the power to the Minister to bring Lloyd's in under this Bill.

§ Viscount SIMON
May I ask the noble Lord when he replies to make clear what subsection (3) means in stating: The Secretary of State may by order …treating a member of Lloyd's as an authorised insurance company …"? Is it the suggestion that an individual member could be treated as an authorised insurance company and not other members? If so, I think we are getting near to the situation of a hybrid Bill.

§ The Earl of LINDSEY and ABINGDON
I have to declare an interest as a working member of Lloyd's and an underwriting agent. I should like to express my sympathy towards this Amendment, not my support. I have taken expert advice on this from under-writers at Lloyd's who are, on the whole, 1208 of the opinion that the Central Guarantee Fund is an adequate protection from any undue likelihood arising from this Bill and that Lloyd's policyholders are adequately protected by the Lloyd's Acts of 1871 and 1951. As your Lordships will be aware, each member of Lloyd's is fully liable for his own liability but not that of another member. Where I have sympathy with my noble friend Lord Reigate is in the wording of the clause in relation to the question of an Order subject to Affirmative Resolution to members of Lloyd's. I appreciate that I am jumping the gun, but both Clauses 3 and 4(5) refer to this procedure. I think that certain members of the insurance industry do not realise the implications of that, and that is where my sympathy lies with this Amendment. However, if it should come to pressing this Amendment, I could not support my noble friend, mainly for the reasons I have given.

§ Lord ABERDARE
My noble friends have argued that this subsection goes too far in making it possible for Lloyd's to be brought in by Statutory Order. As for the remarks of my noble friend Lord Lindsey and Abingdon, I agree with him that Lloyd's has its own Central Guarantee Fund, which has been one of its strengths, which would therefore seem to make it quite improbable that there would ever be any need for Lloyd's to be brought within this sort of protective Bill. In these circumstances, I should have thought it would be even more undesirable to have this power in the Bill, and I agree strongly with what has been said to the effect that if one wants to go as far as bringing Lloyd's within the ambit of the Bill, then it should be done by a piece of legislation and not by Statutory Instrument.

§ Lord WINTERBOTTOM
I am well aware, both from the debates in this House and from private conversations outside, of the very special role that Lloyd's plays in our economy and in the insurance industry as a whole. I can only note what the noble Lord, Lord Reigate, said, that any attempt to bring Lloyd's into some sort of control other than the self-discipline which it exercises might have damaging effects internationally. That is a good comment, but the fact of the situation is—and I should like noble Lords to consider what I have to say before deciding whether or not this 1209 Amendment should be withdrawn, modified later or pressed—that it is not the Government's present intention that the Bill should be extended to cover Lloyd's. However, there are circumstances in which an extension might be considered desirable, and we consider it right that it should be possible to bring Lloyd's in easily and promptly if the occasion should arise. That occasion I find rather difficult to foresee, but I think the noble Viscount, Lord Simon, touched on it when he asked what was meant by "any member." I am arguing without precise knowledge, and I know that there is more knowledge on both sides of the Committee on this issue than I possess, but the situation might arise in some major disaster when one member might founder, and Lloyd's as a whole might not be able to save that member. I think this is hypothetical, but it is the only way in which I can interpret the situation.

§ The Earl of ONSLOW
Is the noble Lord aware of the many protections in Lloyd's, like the reserve funds of the syndicates, the Central Guarantee Fund of Lloyd's, together with each member's private fortune behind it? For the benefit of the Committee, I think it is worth recalling a situation, and I hope that in recalling it I have my facts exactly right. There was a case of credit insurance about 20 years ago. A syndicate was going bust and everybody knew that it was going bust and that the policyholders would not get paid because of that. A credit insurance slip was taken around Lloyd's and each syndicate wrote a line on that slip, knowing full well that it would be a total loss before the policy was even signed. Thus, the events of which the noble Lord spoke, in answer to the noble Earl, Lord Lindsey and Abingdon, are so unlikely that I think they are beyond the bounds of possibility.

§ Lord WINTERBOTTOM
I agree, and everybody appreciates the interlocking suport of members of Lloyd's, but we are at present in a rather strange economic situation, and whereas, as I said, it is not the Government's present intention that the Bill should be extended to cover Lloyd's, there might be circumstances—and I say "might "—when this would be considered desirable. I stress this point because it is part of the whole argument. If it were later, not after this Bill but later—

1210

§ Lord PEDDIE
Might I interrupt the noble Lord to suggest that if there was such a catastrophic situation as he has described, there would not be much point in seeking support from any other quarter to come to their aid?

§ Lord WINTERBOTTOM
We are being a little apocalyptic, but let us hope that we are dealing with the normal crises of life. If it were later decided by the Government to bring the marine, aviation and transport insurance or reinsurance of companies into the scheme, it would be necessary at that point to consider whether Lloyd's, too, should be included at that stage. Lloyd's are of course also heavily engaged in these fields of business and this is perhaps the moment when this proposal becomes relevant. As I said, we live in strange and difficult times, and if Lloyd's existing arrangements for the protection of their policyholders ceased to be as effective as they are now, the power would be available to bring Lloyd's into the scheme as rapidly as possible.

§ The Earl of ONSLOW
The noble Lord said if they "cease to be as effective as they are now ". In what circumstances can he foresee their being more ineffective than they are now?

§ Lord WINTERBOTTOM
Perhaps one is thinking of Germany in 1926—I do not know. As I said, we are living in strange times. I know that the total wealth of all members of Lloyd's is behind the system of Lloyd's support for the policies that they issue. But we live in a very difficult period and I think it is prudent—and the word "prudent "is a valued word in the world of insurance —that the power ought to be there should a crisis arise. As I say, this eventuality is extremely unlikely.

§ Lord ROBBINS
Might I put this very simple consideration to the noble Lord? If a Bill like this, which is designed presumably to deal with practical circumstances, takes account of possibilities which are almost infinitely unlikely, is it not likely to create more alarm than to allay it?

§ Lord BESWICK
Might I intervene, wearing another hat? Could we have a more regular debate? If my noble friend is allowed to finish what he has to say, I am certain that there will be plenty of 1211 time for other noble Lords to put their points and I can then see what the cumulative effect of what is said amounts to. My noble friend has not finished.

§ Lord CACCIA
Perhaps I may put a point to give the noble Lord a chance of saying something to cover this because he used words which, interpreted abroad, might have serious effects. If talk about Germany in the 1920s were picked up by the foreign Press, that could be highly unfortunate. I am sure that the noble Lord did not have that sort of thing in mind at all.

§ Lord WINTERBOTTOM
Your Lordships were casting about a number of hypotheses, and I was throwing in a hypothesis, too. One has somehow to illustrate a situation. An eventuality might arise when the powers in the present clause might be useful. If the powers were exercised, they would be carried through by the Affirmative Resolution procedure.
I have a substantial sympathy with what the noble Lord, Lord Balfour, was saying. He feels that delegated legislation is not so powerful an instrument of control as might be thought. The noble Lord, Lord Reigate, knows that it has the disadvantage that it cannot be amended: it either stands or falls on its own merits. We, as a House, can do nothing about it other than to reject it. Nevertheless, it is a form of control which I am certain your Lordships will use vigilantly. I am sure that a Motion of this type would not slip through this House unobserved, nor do I believe that it would pass through this House unless the situation were such that your Lordships were entirely satisfied that the Proposals of the Secretary of State were justified.
That is the argument for retaining the clause in the Bill and I can do no more than put it to your Lordships. I know that I am touching on a particularly neuralgic point and that, in a sense, I am criticising the value and probity of Lloyd's. Of course I mean no such thing: but we are discussing the problems of the collapse of insurance companies and, as we live in a shifting and uncertain world, we believe that it is wise to have these powers in the Bill should we need to use them.

1212

§ Lord CHORLEY
The Minister has suggested that this would be used only in a case of absolutely catastrophic emergency. Surely, in that case, there should be an Act of Parliament, as there always has been when this sort of situation has arisen—for example, in 1914 and 1939.

§ Viscount SIMON
The Minister has not answered the question which I put to him. Does the clause mean that the Minister can, by appropriate Order, treat a member of Lloyd's—an individual —as an insurance company, without treating all members of Lloyd's as an insurance company?

Lord HARMAR-NTCHOLLS
I have been a name at Lloyd's for a number of years and I am a director of an insurance company. That is a declaration of interest but, apart from that, in listening to the explanation of the noble Lord, Lord Winterbottom, I felt that he must beat a hasty retreat. Taking his argument only on its own basis, and without using any outside knowledge which one may have, he has admitted that this could be dangerous to the general reputation and character of Lloyd's. He has admitted that Lloyd's is an integral and very important part of our economy and plays a vital part in bringing in invisible income. He has admitted that the chances of its requiring this sort of control are very remote and his very demeanour shows his reluctance even to talk about it. It is well known that, long before Governments thought of giving this sort of protection, Lloyd's had their own. which has passed the test of time and of all sorts of crises. I believe that the very fact that the matter has had to be discussed at all will have done untold damage. If this is allowed to pass so that it has to he discussed at a later stage, that will exaggerate the damage which has already been done. I suggest that the damage which has been done cannot now be undone. But, on the basis of the very prudence which the noble Lord himself was talking about, I believe that the provision should now be withdrawn. The sooner that is done, the more likely we are to minimise the damage which has already been done.

§ Lord ALDINGTON
May I say how much I support the Amendment, even though it might be said that if I were 1213 looking to my company's interests—and I declared my interest in the earlier debate—I should be in favour of Lloyd's being included in the Bill, because it looks as if it might affect the policyholder as to 1 per cent. However, that is not the view that I take nor, I believe, is it the view that anybody in the insurance industry takes. We believe that there is something special about Lloyd's and since there is something special, we are glad that it is outside this "burden "—if I may so put it—of the Bill. In case noble Lords may have thought that that thing which is peculiar about Lloyd's is that insurance interests of its size are not given the same form of guarantee fund as it has, that would, I believe, be an error. Some of the larger insurance companies—not mine, which is not one of the absolutely largest companies—are as big as the whole of Lloyd's put together. Why, then, are they in the Bill? The answer is that the insurance companies as a genus, as it were, are dealt with under the Bill, and I see no reason why something special and peculiar and with the tremendous reputation around the world which it has built up and of which insurance companies have the benefit, even though some of them are fairly old, too, should be included in the Bill.
I should like to remind your Lordships —and I am sure that my noble friends who were stressing the credit-worthiness of Lloyd's and the importance of the guarantee funds were aware of this and did not wish to cast aspersions on the old and large insurance companies—that, to a great extent, the large insurance groups, which are groups of companies and of underwriters, themselves provide the same sort of guarantee fund for the underwriting of each company as Lloyd's do. So, there is not all that much difference. The main difference is that insurance companies are caught by the Bill and that Lloyd's are not and should be left out. Surely the point—which is a very small but very important one made by the noble Lord, Lord Balfour—is that, on important points on which we take a decision now, we must not in future allow Bills to be amended by Statutory Instrument. That is why I am in favour of my noble friend's Amendment.

§ Lord BESWICK
The Amendment is creating rather more interest and excite- 1214 ment than I had expected. The simple fact is that it was thought that it would be useful to have the power, and a further simple fact is that those who spoke on behalf of Lloyd's had no objection to the inclusion of the power in the Bill. But as Lloyd's appears to have other spokesmen in this House, if it helps, and in order to facilitate business, I suggest that we accept the Amendment.

§ Lord BALFOUR of INCHRYE
With respect to the Minister, it is irrelevant whether or not members of Lloyd's support the Amendment. The point which the Committee was trying to consider was whether Parliament should assent to major acts of policy by the Statutory Instrument procedure. The question is whether there should not be amending legislation in cases of such major importance as this one. I hope that the Minister will be as co-operative on my objection and on the possibility of amending the Bill as he has been in other directions.

§ Lord BESWICK
I find the point a very valid one and I suggest that the Amendment be accepted.

§ Lord REIGATE
Before the Amendment is accepted I feel that it would be almost indecent if I did not express my dumbfounded gratitude to the noble Lord, Lord Beswick. This will be very much appreciated by a large section of the insurance industry for which my noble friend Lord Aldington spoke. They appreciate the very different nature of Lloyd's. My only regret is that I had prepared to reply to the noble Lord with a diatribe of cataclysmic or apocalyptic dimensions, or whatever the phrase was which the noble Lord, Lord Winterbottom, used. However, I can now conclude on this very happy note and say no more.

§ On Question, Amendment agreed to.

§ Clause 3, as amended, agreed to.

§ 4.10 p.m.

§ Clause 4 [Protected policies and protected policyholders]:

§ Lord BELSTEAD moved Amendment No. 5: Page 3, line 18, leave out from (" Kingdom ") to end of line 19.

§ The noble Lord said: Subsection (2) of Clause 4 provides that a protected 1215 policy is a contract of insurance made in the United Kingdom, but there is a proviso which runs into lines 18 and 19 and also into subsection (3). It would seem that this proviso, by enabling the policyholder to be covered by the Bill provided only one premium is paid in the United Kingdom, to some extent runs contrary to what one would have thought was the definition of a protected policy at the beginning of the subsection—

§ Lord BESWICK
Before the noble Lord goes any further, may I suggest that it would be to his convenience, and probably to the convenience of the Committee, if we were to take Amendments Nos. 5 and 6 together?

§ Lord BELSTEAD
I apologise to your Lordships. If the Committee will allow, I should like to speak to Amendments Nos. 5 and 6 together. In moving Amendment No. 5, and speaking to the other one, I want to probe the Government's intentions. I had assumed that a Bill in which citizens of the United Kingdom are being required to provide cover for policyholders in the event of company liquidation, or when a company is at risk, was confined to the United Kingdom. After all, the power to rescue under Clause 16 may be used with some frequency, as many noble Lords recognised in their speeches on Second Reading. Are United Kingdom policyholders to guarantee policies irrespective of where they have been made or where the premiums are payable, provided that just one premium is paid in the United Kingdom? It may be that I do not understand the point well enough, or that the Government have other information, but it seems a novel idea.
I wish to put one question to the noble Lord who is to reply, and if I do so now it will give him a moment to consider it. If a policyholder, whose policy was made outside the United Kingdom and whose premiums are payable outside the United Kingdom, was to take out his policy immediately after this Bill received Royal Assent and he paid the first premium immediately in the United Kingdom, and, then, in a few years' time another company found that it was liquidated, would that policyholder be required to pay the levy which would then generally be called for in order to help that financial col- 1216 lapse? That is the sort of worry which is in my mind in reading this whole clause. I hope that the noble Lord will forgive me for putting that question in moving the Amendment, but I thought it might give him a moment or two to think about a reply. However, I am generally seeking the Government's views, in particular the reason why there is this provision that one premium, and one premium only, paid in the United Kingdom will bring an overseas policyholder within the scope of the Bill. I beg to move.

§ Lord BESWICK
This is a technical matter and I shall keep very closely to my notes. I hope I give the assurances and the answers that are wanted. Having said that, if it is thought that we need some tightening up of the clause, then I am quite happy to discuss it. Let me say what I understand the position to be. The definition of a protected policy is important, as the noble Lord says, in that it governs the extent of the protection to be given by the Board under clauses other than those to which the noble Lord, Lord Belstead, referred—namely, under Clauses 6, 8, 10, 11, 15 and 16; and, equally, the extent of a company's net premium income liable to levy by the Board under Clause 17(3) and (4).
The effect of subsections (2) and (3) together is to define protected policy coextensively with a domestic liability for the purpose of Section 31 of the 1974 Act, which empowers the Secretary of State to require an insurance company to maintain in the United Kingdom assets equal in value to its domestic liabilities. In other words, these two subsections exclude from protection under the Bill business carried out by an authorised insurance company entirely outside the United Kingdom, just as Section 31 of the 1974 Act effectively excludes a company's purely overseas liabilities—that is, liabilities that are not domestic liabilities as defined—from the safeguard of the Secretary of State's power to insist on the maintenance in this country of matching assets.
It is desirable to maintain some consistency here. In any case, the Amendment would have an unduly restrictive effect. If a contract of insurance were made with a United Kingdom company by someone living, perhaps temporarily, abroad through an agent in that country, it would not be eligible for protection 1217 under the Bill, even if it were the intention of the parties that the premiums should be paid and the contract performed in the United Kingdom. Even if the person concerned dealt directly with an insurance company in the United Kingdom by post, he might still not qualify for protection, because it could be under whatever was the relevant law in the particular case that the contract would be held to have been made outside the United Kingdom, notwithstanding the fact that it was the intention to pay the premiums and perform the contract in the United Kingdom. In the Government's view, it would be wrong to exclude such cases from the Bill's protection and to make the policyholder's eligibility for protection wholly dependent upon technical legal criteria of this kind. Having said that, if it is thought that the words do not quite cover the point, I shall have a look at them.

§ Baroness FISHER of REDNAL
I am not an expert on insurance and I wonder whether my noble friend can explain a point to me. I thought that the principle of the Bill was that the life policyholders would have the premium levied on them to pay for the guarantee scheme; in other words, policyholders who have normal insurance as we know it would have a levy put on them to cover any guarantee schemes. Can my noble friend tell me why those policyholders with life assurance should have to be considered as guarantors for marine, aviation and transport insurance?

§ Lord CACCIA
While the Minister is considering that point, may I thank him for his assurance that he will look again at the drafting of the Bill to ensure that the points made by the noble Lord, Lord Belstead, have been covered. If I may sum it up, the anxiety is this. As at present drafted, it looks as if the provisions of Clause 4(3) would enable any long-term policyholder of an insurance company authorised in the United Kingdom to come within the scope of the proposed guarantee scheme, irrespective of where his policy was made or where the premium was payable, provided he could prove that he had paid one premium in the United Kingdom. Surely this is wholly inconsistent with the purposes of the Bill? Therefore, I should be grateful if the noble Lord would look at this point of drafting.

1218

§ Lord BESWICK
I undertake to look at it. With regard to the matter raised by my noble friend Lady Fisher of Rednal, she probably did not hear but I accepted the Amendment to which she was speaking.

§ Lord DRUMALBYN
Before my noble friend speaks, may I raise a point with the noble Lord? Subsection (3) is drafted entirely in terms of premiums. As I understood him, he was talking mainly about where the contract was made. I am not a lawyer, but I should have thought that the contract was made where the acceptance of the contract took place.

§ The Earl of LIMERICK
While the Minister is considering that point, can he help me with another matter? It seems that we have two parallel lines of argument developing. One is the question of whether policies have been included here with the policyholders, as it were, sneaked in under some provision to which they might not be entitled. The other, with which the noble Lord was concerned in his initial reply, is whether they have been accidentally excluded. There may be confusion in minds other than mine as to precisely what is the intention of the Bill; in simple words who should enjoy the benefit of this and who should not?

§ Lord BELSTEAD
While the noble Lord is waiting for a moment to reply, may I say that I accept that I suspected that the Amendment was unduly restrictive. There is no intention of pressing it. I am grateful—as possibly are other noble Lords who have experience of this but none the less wanted to hear what the Government had to say—that we have got a lengthy and full statement from the noble Lord of the intention. I am still not quite clear why it is one premium and one premium only which is going to qualify the premium-payer for the enjoyment of protection under this Bill. This leads me to have the same worry as (and expressed in better words by) my noble friend Lord Limerick. I am not quite sure in general whether the intention of this clause is to exclude certain people or to make sure that certain people are included. When the noble Lord finally replies, I should like to withdraw the Amendment and to look with some care at what the noble Lord said in his original reply.

1219

§ Lord BESWICK
I am not sure that I can give a complete reply to the questions that have been asked. I think the reason will be understood. So far as the intention of the Bill is concerned, the intention of the clause is to restrict the definition of protected policies that may qualify for protection under the Bill by excluding any that do not evidence contracts made in the United Kingdom. In the Bill, protected policies include those evidencing contracts made elsewhere if at least one premium payable under the contract is payable or has been paid in the United Kingdom. That is the definition. Those that have not had this premium paid in the United Kingdom are out. That is considered to be reasonable. The Amendment would have restricted it further and unduly. On the other hand, if the clause does not restrict it sufficiently, and we can make sure that it does, then I will look at it.

§ Lord ABERDARE
The difficulty, it seems to us, is that if a businessman in the Argentine takes out a policy in the Argentine with a British company and pays only one premium in London, he is covered by the terms of the Bill.

§ Viscount SIMON
If the noble Lord is to look at this point before the Report stage, will he consider whether a possible Amendment is that at least half the premiums should be paid in the United Kingdom in order to make the policy protected?

§ Lord BESWICK
If noble Lords consider the sort of circumstances that might arise, I am not sure that that is not being too restrictive. If the noble Lord does not know what the intention of the Bill is, then I am not clear in my mind what is the intention of some of these speeches against it. May I consider what has been said and have a look to see that what we both want is, without any doubt, put into words in the Bill? As I now see it, it is.

§ Lord DRUMALBYN
It seems to me that this is a very far-reaching provision which will have far-reaching consequences. I think it would be a good thing to come back to it again on Report stage.

§ Amendment, by leave, withdrawn.

§ Lord BELSTEAD moved Amendment No. 7: 1220 Page 3, line 25, leave out ("Subject to subsection (5) below").

§ The noble Lord said: I think it is important at this stage to clarify drafting, which certainly I find rather convoluted, in subsections (4) and (5). These, taken together, specifically include marine aviation and transport. If the Secretary of State makes an Order to that effect, it is true that the order-making power to bring marine, aviation and transport within the scope of the Bill is going to be subject to Affirmative Resolution. But an Order cannot be amended; and I do not think it would be suitable for a fundamental amendment to the Bill. This is a matter which my noble friend Lord Balfour and others spoke on in the Amendment relating to Lloyd's which the Government accepted a few minutes ago.

§ If MAT insurance were brought within the scope of the Bill, it would breach the principle of the protection of private policyholders. When the Parliamentary Secretary was replying to a debate in the other place on 7th March, referring to this Bill, which was then forthcoming, he said that it would be limited to private policyholders. I understand from Clause 6(7) that private policyholders are those who are either (a) n individual or (b) partnership or other incorporated body of persons at least one of whom is an individual. My reading of Clause 6 is that it makes clear that except for compulsory insurance this is the intention of the Bill.

§ Whether it is right to confine protection within the scope of the Bill to private policyholders only is obviously something which is debatable. What I think is certain is that marine, aviation and transport is generally placed through brokers and largely relates to industrial and commercial risks, and that reinsurance is undertaken between different insurers. This falls within the next Amendment to which, if the Committee will allow, I should like to speak at the same time. What is also certain is that these classes of business are often undertaken on an international basis, so that we could find the protection of overseas policyholders being brought into the Bill regardless of what the Government may eventually decide about the wording of subsection (3) which we have been talking about. If marine, aviation and transport and reinsurance are to be brought into the Bill, should the commercial risk involved 1221 really be guaranteed by private policyholders? I do not say that the answers to all these questions are conclusively adverse, but I do say that the questions raise important issues which ought not to be brought into the Bill by an Order. I beg to move.

§ Lord WINTERBOTTOM
When I prepared myself to deal with this clause, I was prepared at the same time to consider the points made by the noble Lord, Lord Belstead. The fact that my noble friend has accepted the deletion of subsection (3) from the Bill strengthens my will to consider the proposal made by the noble Lord, Lord Belstead. May I, however, argue the case a little more closely, so that when we come to reconsider the issue at Report stage we shall know what the argument is about.
As in the case of Lloyd's, the Government do not have any present intention to extend the Bill to cover MAT or reinsurance business, but we consider it important that the Bill should be flexible enough to allow for their inclusion should the case for it arise in the future. These are the same arguments as over Lloyd's; that it might, in the light of experience, be considered unfair to deny any protection to private holders of MAT policies when other private policyholders are covered. More specifically, in the event of difficulties arising among companies writing a substantial amount of MAT or reinsurance business and of consequential damage to the reputation overseas of the British insurance industry, it might be desirable to extend the scheme to all holders of MAT and reinsurance policies, whether private or corporate. In such a case it will be necessary for any amendment to be made urgently while at the same time being subject to Parliamentary approval. We believe that the Affirmative Resolution procedure is most appropriate for this purpose.
It should be noted that an order under this subsection could only extend the Board's duties to cover private holders of MAT policies and holders of long-term reinsurance policies. If it were considered desirable that corporate MAT policyholders or holders of general insurance policies should be protected, an order under Clause 14 would be required in addition.
1222 I turn to a point made by my noble friend Lady Fisher of Rednall which she was relating to Amendments Nos. 7 and 8 rather than to Amendments Nos. 5 and 6. I know that the point she makes is a sensitive one, and it worries many people. It is not intended as the Bill is drafted, MAT is brought in because it is excluded by a previous clause, and it will not be separately funded because it is part of general business. As it is a sensitive matter, we are willing to consider the implications of this Amendment and I will consider the cause of the worry to my noble friend when we come to reply at Report stage. As I have said, we are prepared to consider the points made by the noble Lord, Lord Belstead, and other noble Lords, and I hope for this reason he will withdraw the Amendment.

§ Lord ALDINGTON
I want to pursue my role of taking a little harder line on these matters. May I stress again the point made successfully one clause back —that is, if it is decided now to exclude from the Bill either Lloyd's or particular forms of insurance by whomsoever conducted, that decision should not be reversible by Statutory Instrument but should only be reversible by Act of Parliament. That seems a constitutional point which the noble Lord, Lord Beswick, with his accustomed grasp of constitutional points, accepted as valid in the previous clause, and therefore I am expecting him—without I hope overconfidence—to accept that now.
I think I heard the noble Lord, Lord Winterbottom, repeat to this Committee an argument which has been used in distinguished places in the City of London —that once we have a Bill like this then it is incumbent on Parliament to provide 100 per cent. protection to all policyholders on all types of insurance from wherever the policy may have been taken out. I regard that as a great misunderstanding of what I believe to be the purpose of this Bill and the underlying purpose of the insurance industry. I do not think that we are saying that the British insurance industry is in such a state that to all the people all over the world we need to have a special scheme for offering 100 per cent. Protection. We are saying nothing of the sort. We are saying that the time has come to accept 1223 the consumers' point of view in this country, that history has proved that in the past few years a number of small or new insurance companies have gone out of business to the damage of a number of private consumers, and we want to protect that kind of person from that kind of situation happening again. To extend the whole argument to all kinds of insurance, to all kinds of policyholders regarding our foreign business is, with great respect to those distinguished people who used that argument, a complete misunderstanding—and I should have thought we all agree with this—of the purpose of the Bill.
Do not let any message go from this Committee that either this House, the other place or the Government are distrustful of the credit of the insurance industry, of Lloyd's in general, in the business that they do. There is a particular problem for the individual domestic policyholder, and that is all. Because that is all, and because of the importance that this is understood, I attach the greatest importance to the points my noble friend Lord Belstead made about keeping marine, aviation, transport and reinsurance business outside the ambit of this Bill.

§ Lord BANKS
May I raise a point in connection with the possible inclusion, as the clause envisages, of a contract of reinsurance. The holder of a contract of reinsurance is another insurer, and presumably the other insurer's private policyholders are protected by the Bill as it stands. Is it envisaged that the insurer himself will be protected, so that there will be a double protection for his private policyholders and himself in case his reinsurance fails? If so, will the levy be applied to those who accept a reinsurance contract? If that is so, would that mean a double levy, since all the money has come in the first place from the policyholder whose premium income has been included initially in the levy on the first insurer?

§ Lord CACCIA
I support what the noble Lord, Lord Aldington, has said. It is important that we should keep in the forefront of our minds that what we are seeking to do is to protect the individual policyholder in this country. That, as I understand it, is the main purpose 1224 of the Bill. This clause extends far beyond that, or could be extended beyond it by Statutory Order. I think the two valid objections to that, which I hope the noble Lord will be prepared to consider, are, first, that it could affect the general standing of our insurance business overseas by bringing in the kind of considerations to which the noble Lord, Lord Aldington, referred. There is also a point which has been made forcefully by the noble Lord who has just spoken, that we are not considering individuals, we are considering companies and other such bodies. I think that, too, is beyond the general purposes we had in mind in this Bill.

§ 4.36 p.m.

§ Lord BELSTEAD
I hope the Government will consider what the noble Lords, Lord Aldington and Lord Caccia, have said. They have experience in this matter, and when they warn that they accept the intentions of this Bill so far as it affects all consumers in this country, that they are not suspicious but are worried about the effects which this provision might have on overseas insurance, which is important to the balance of payments of the country, it is more than well worth considering what the noble Lords have said.
I understood the noble Lord, Lord Winterbottom, to say that because there was a worry as to whether private insurers should be paying for the form of corporate insurance which might be imported through this subsection, what might be needed in the future would be an Order under Clause 14 to make both private and corporate insurance under marine, aviation and transport business subject to the Bill. I hope the noble Lord will forgive me for saying that I think that will drive a coach and horses through the intention which I thought was in this clause and in the Bill as a whole.
The Committee has sympathy with the noble Baroness, Lady Fisher of Rednall, when she asks why the private individual, saving for his or her old age by means of a policy of life insurance, should pay for corporate insurance or reinsurance. It is not for me to answer that or the question put by the noble Lord, Lord Banks, but I am going to listen with interest while the Government give their reply. It is the Order-making power which is the difficulty here. Noble Lords are genuinely concerned not that it may 1225 be the intention of the Government to do what is included in subsection (5) of this clause—I have already sought to make it clear I am concerned about this, and other noble Lords have said this also —but overlying that is the added worry that this might be done by Parliamentary Order. If the Government consider they have good reasons for excluding marine, aviation and transport business from the Bill, will they think most seriously of leaving it at that for the moment and taking away the order-making power? To leave that in is something that would shake confidence, and possibly, as noble Lords has said, shake confidence in British insurance acting overseas.

§ 4.40 p.m.

§ Lord BESWICK
I wonder whether I may answer "a question and a half" which has been put to me. The noble Lord, Lord Banks, asked about the position of the reinsurer and whether there would be a doubling-up of the levy—one coming from the reinsurer and the other from the insurer. The answer is "No". The reinsurance premiums are subtracted from the premiums of the direct insurer, so the legitimate doubt which the noble Lord expressed is met by the Bill.
The noble Lord, Lord Caccia, raised the point, which was also referred to by my noble friend Lady Fisher, as to why the private individual should pay for corporate mistakes in insuring with the wrong company. The fact is that what we are now considering covers only the private holders of MAT policies. If there were to be any coverage of corporate bodies there would have to be a separate Order under Clause 14. So the fear which has been expressed is not well founded. But there is this question of the order-making power. I would not go as far as the noble Lord, Lord Belstead, and dismiss such powers. One cannot do that. With due respect to him, it is nonsense to say that there should not be an order-making power vested in the Secretary of State. The question is whether those powers are extended over the wrong areas.
I thought that as far as Lloyd's was concerned we were dealing—and indeed the noble Lord, Lord Aldington, mentioned this—with a special case. After all, there we have a case of mutual help, as it were, which, if it went right across the insurance business, would eliminate any need for this Bill. If there were the 1226 same provisions for helping each other in the rest of the insurance business that there are in Lloyd's, some of these difficulties would not arise. We have seen cases where there have been difficulties connected with Lloyd's and they have been met. Therefore I feel that although one may say, "There should be no order-making powers there ", it does not necessarily follow that we should not have order-making powers in respect of another area.
Here we are comparing one category of insurers—namely the Lloyd's insurers —with a category of insurance, when we are dealing with marine, transport and aviation. As I see it, within marine, transport and aviation there might be some who are quite sound and others who are less sound so there may be a need for the protection we have in mind. I should be interested to hear what the noble Lord, Lord Aldington, says about this, because it is very important to get it clear. The noble Lord says that if you have a reserve fund, a "long-stop ", then it is going to be bad for the reputation of British insurers in the world. I should have thought the opposite would be the case. At any rate, is there not an argument to be made for the opposite case? If we have a country like ours, where we are so keen to see that our reputation is unsullied and that no-one should be let down that we have a reserve fund of this kind that will insure and, as it were, reinsure, surely that will redound very much to our credit and not the opposite. What has done harm to our reputation in the world has been some of the failures we have had. If we are going to eliminate those failures, surely our reputation would stand higher. That at any rate, is the argument. I should be interested to hear Lord Aldington's comment on that, if he cares to give it. At any rate, I will undertake to see that the points which have been made are given further consideration.

§ Lord ALDINGTON
May I respond to the noble Lord's invitation and say quite shortly that I have some sympathy with the question which he put, because, as I tried to make clear, I did not accept the argument of those who have said that once you introduce a Bill like this you have to give 100 per cent. cover to everyone. What I was trying to say was that the purpose of this Bill is to 1227 protect the consumer of insurance policies, if I may put it in that way, in the United Kingdom. Its purpose is not to seek to buttress the credit of the British insurance industry all over the world. That is not something which the Government have set out to do; nor is it something that anyone here, in the City or indeed in the other place, has thought necessary. If one accepts that, even though it may be questioned by a few, then I say it is inconsistent with the main purpose here to introduce marine, aviation, reinsurance and transport insurance into the context of the Bill. Indeed, not only am I saying that, but the drafters of the Bill say it also. I then go on to say that having made up one's mind that that is the right decision to take in the context of a Bill whose purpose is to protect the consumer in Britain and to provide the kind of insurance policies which are essential to the individual in Britain, it is not sensible to have a power in the Bill—quite apart from its also not being constitutional—to reverse that; because if you do have that power you are casting doubt upon the credibility of your main argument.

§ Lord BELSTEAD
It is because of what the noble Lord, Lord Aldington, has just said that I take the view that the order-making power in this clause extends too far. I know the noble Lord will be as good as his word and will be prepared to consult on important points, so may I give him notice that this is one of the points we should like to consult on and on which at the moment I must register a mark of disagreement? If it can be discussed informally before we get to Report stage, then I would beg leave to withdraw the Amendment.

§ Amendment, by leave, withdrawn.

§ On Question, Whether Clause 4 shall stand part of the Bill?

§ The Earl of LIMERICK
I should like to ask for clarification on certain points, and I assure the noble Lord opposite, in all sincerity, that I have no intention of adding to his problems. We are obviously moving towards a better understanding of how the purposes of the Bill should be achieved. In looking again at this provision, may I ask the Government to consider this point: if we are dealing with the savings of individuals, 1228 the obvious area is life insurance. With, say, a motor policy, one might say that the worst risk that could be run would be that the policyholder would lose a year's premium, and beyond that the insurance company takes care of the matter, although if it is not solvent the man may lose the value of his motor car. However, with large third party awards that are being made, he is mortgaging not his past savings but possibly his future savings if he finds there is no effective cover. I know that substantially this is covered by the MAT arrangements, but there may be areas where these do not apply.
There has been no mention of fire insurance and it occurs to me that, again, an individual's life savings might be invested in the value of his house. If he has a mortgage, the mortgagee would normally insist on there being effective fire cover. I do not wish to press for an answer to these points now, but I would ask the noble Lord whether he would include them among those he is submitting for further consideration.

§ Lord BESWICK
I will certainly undertake to have a look at that. I cannot give an answer now, and I am a little surprised that the question has to be raised, but I will look at it.

§ Clause 4 agreed to.

§ Clause 5 [Application of Sections 6 to 11]:

§ 4.49 p.m.

§ Lord PEDDIE moved Amendment No. 9: Page 4, line 20, after ("1974") insert ("and before 30th October 1979").

§ The noble Lord said: I beg to move Amendment No. 9 and I take it that the four Amendments, Nos. 9, 10, 11 and 12, can be taken together. Noble Lords may be somewhat intrigued to know why these Amendments are put down. I think all in the Committee are conscious of the need to seek protection of the policyholder. It is better to avoid failure than to have partial compensation in consequence of failure. These Amendments make a contribution towards that end, and seek to urge forward those activities which can contribute towards preventing disaster or failure such as that of Nation Life and London Indemnity of last year which probably gave rise to this Bill.

1229

§ The purpose of these Amendments is to limit the guarantee scheme to insurance companies which fail during a five-year period commencing on the date of the Queen's Speech last year. An Insurance Act was passed in 1973 which has now been consolidated into the 1974 Act. This Act provides for the making of a large number of regulations to control the activities of insurance companies, Most of the regulations have not yet been made. When they have been made, the powers of the Department of Trade will be so wide that, coupled with prohibitions on unsound practices of the kind which led to the failure of Nation Life and London Indemnity—and these prohibitions can be brought in by Amendments Nos. 64, 65 and 66 standing in my name —the Department should be able to prevent any future insurance company insolvencies and the guarantee scheme will become unnecessary.

§ These regulations should all be made quite easily and comfortably before the end of the five years, and in my opinion the guarantee scheme should not be continued any longer than necessary, because it charges the cost of insurance company failures to persons who have no responsibility whatsoever for those failures; namely, the policyholders in sound insurance companies. That is a point that has been pressed time and time again. The purpose of these Amendments is to ensure that we do not merely rely upon providing compensation—which, of course, is important—but give emphasis to activities on the part of the Department that will assist in preventing troubles and problems of the kind that necessitated this legislation. I beg to move.

§ Lord WINTERBOTTOM
When I studied this Amendment I am glad to say that I guessed my noble friend's intention aright. The point he is arguing is that it is far better to avoid failure than to patch up the damage after failure has taken place, and that if we use the powers that are inherent in the 1973 Act, as incorporated in the Act of 1974, we should be able so to supervise various companies that failure becomes so improbable as to be almost impossible. Therefore, he is arguing that the Bill should have a life of only five years. Various suggestions have of course been made for the tighter 1230 control of insurance companies, and it is suggested that if these were introduced during the next few years, as my noble friend is proposing, there would no longer be need for a protection scheme.
As noble Lords will know, we are already, through the powers of the 1974 Act, in the process of strengthening considerably our supervision of insurance companies. We are certainly willing to consider further suggestions from noble Lords and others, possibly through consultation and perhaps at a later stage in the Bill. In particular, we are already proposing to make regulations requiring all companies to make quarterly actuarial returns. That power is now being sought —or, rather, we have the power and we are now proposing to implement it. Once this tighter supervision is fully in force we are confident that the Board will need only to impose a levy. But—and I think that my noble friend, who is a fair-minded man, will agree—no system of supervision, however strict, can be foolproof. Certainly no system of supervision can be totally accident-proof in an accident-filled world.
Insurance is, of course, the business of taking risks and bad fortune or difficult economic circumstances may still, unhappily, cause the occasional failure. I am convinced, therefore, that a continuing protection scheme is necessary to complement our supervision, and it would be wrong to accept the proposal to abandon the scheme after four or five years. I agree completely with my noble friend in saying: "Let us prevent failure if we can." But since perfection for ever is not open to us, power to retrieve damage if it should happen for the reasons I have given should, I believe, be retained. For this reason I hope that my noble friend will withdraw his group of Amendments.

§ Lord PEDDIE
I am glad to hear my noble friend indicate clearly that prevention is the most important activity. I take it that he has given us assurances that efforts towards that end will be accelerated, to say the least. I am not entirely happy with his reply. I am prepared to study it, however, and I hope that it can be the subject of discussions between now and Report stage. On that basis, I beg leave of the Committee to withdraw.

§ Amendment, by leave, withdrawn.

1231

§ On Question, Whether Clause 5 shall stand part of the Bill?

§ Lord BALFOUR of INCHRYE
I wonder whether the Minister could make clear to me something which I do not understand. Subsections (2) and (3) of Clause 5 exclude companies which are, as it were, at risk or have a winding-up order unless such is passed after the date of October. Then, if we look at Clause 14(1) we see that the Minister is given powers to vary, extend or restrict any of the duties of the Board under Clauses 6 to 11, which are the relevant clauses mentioned in Clause 5(2). That seems to me to give the Minister powers to bring in by order companies that may be in trouble before October, such as Nation Life, and therefore is contradictory to, or renders useless, subsections (2) and (3) of Clause 5.

§ Lord BESWICK
I can only say that that is not my reading of the Bill. If the noble Lord would like a fuller answer I will obtain it for him and let him have it.

§ Lord BALFOUR of INCHRYE
I thank the noble Lord.

§ Clause 5 agreed to.

§ Clause 6 [Compulsory insurance policies and securities]:

§ 4.59 p.m.

§ Lord PEDDIE moved Amendment No. 13: Page 5, line 28, after ("holder") insert (" by the liquidator from the assets of the company in liquidation ").

§ The noble Lord said: I beg to move Amendment No. 13 and will speak also to No. 14 because they go together.

§ Lord BESWICK
May I help my noble friend? I am not trying to limit discussion. We can come back to the point on other clauses. However, as I understand it, Amendments Nos. 13, 14, 16, 17, 21, 22, 24, 25, 28, 29, 45. 51, and 69 and 70, which relate to Clause 14, all hang together. Perhaps we could discuss the general principle. As I have already explained to the noble Lord, we can discuss on Thursday Amendments Nos. 69 and 70, which we received only this morning and which relate to Clause 14.

1232

§ Lord PEDDIE
I am quite prepared to do that, and I welcome the suggestion which has been made by my noble friend. Obviously, it will involve a more detailed statement on my part, because it will cover the arguments relating to all the Amendments to which my noble friend has referred. However, I believe that it is a wise procedure, because all the Amendments hang together. My statement at this stage will help the Committee to understand what lies behind this series of Amendments and also the new clause.
These two Amendments are the first of a series of Amendments which are in very similar terms to the Amendments to Clauses 6, 7, and 8. As has already been indicated, they are Nos. 13, 14, 16, 17, 21, 22, 24 and 25 in the Marshalled List. The three clauses to which I have referred deal with the guarantee arrangements for policies other than long-term policies—long-term policies being, in the main, life assurance policies. These clauses deal with fire, accident, motor and similar policies. These Amendments are linked with the Amendment to leave out Clause 13(1)—Amendment No. 45 in the Marshalled List. The Amendments are also linked with the Amendment to introduce a new clause—Amendment No. 69 in the Marshalled List.
Because of the way the Bill is framed, Clauses 6, 7 and 8 deal with various kinds of insurance policies other than life assurance policies. Clause 6 deals with insurance policies which people are required by law to have, the most important and obviously the best known being the motor insurance policy against third party personal injury risks. Subsection (6) of Clause 6 deals with non-compulsory insurance which is included in the same policy as compulsory insurance. The most familiar example is the comprehensive motor policy where the accidental damage cover is not compulsory insurance but where the insurance against liability for third party personal injury is compulsory.
Clause 7 deals with the special statutory rights of certain claimants to claim direct against insurance companies. Clause 8 deals with all general business policies which are not compulsory policies. General business policies are all policies other than long-term policies—long-term 1233 policies being, in practice, life assurance policies. Clause 6(4) states that it shall be the duty of the Board to secure that if an insurance company goes into liquidation, the policyholders receive 100 per cent. of their claim on compulsory policies. Clause 6(6) and Clause 8(2) state that policyholders shall receive 90 per cent. of their claim on non-compulsory cover.
These clauses do not specify how the Board shall secure that policyholders receive these sums. However, in Clause 13(1) the Board is given two ways of securing it. First, they can do so by themselves making payment to those policyholders. Under Clause 13(7), the Board would take an assignment of the policy's rights in the liquidation up to the amount of any payment made by the Board, or by securing that the guaranteed payment is made to policyholders by someone else. In practice, this means the liquidator of the failed insurance company, and this would mean the Board giving an indemnity to the liquidator. All this sounds very fine. I must apologise to the Committee for spelling it out in detail, but it is so very important and so basic to our consideration of the Bill. As I say it sounds fine, but the Bill places no obligation whatever on the liquidator to accept such an indemnity and to make payments from the assets of the insurance company in liquidation.
We know what happens in practice. Under the present liquidation laws, policyholders' claims rank equally with the claims of all other normal creditors. The liquidator is not happy to make payments to policyholders until he is in a position to complete the liquidation, and it is quite normal for this to be 10 years or more after the company has gone into liquidation. I can assure your Lordships that I am not exaggerating. In fact, it is most unusual for payments to be made less than 10 years after the company has gone into liquidation.
There is in existence at present the Motor Insurers Bureau, by which the insurance companies have voluntarily arranged that the compulsory motor insurance cover of any insurance company that fails is nevertheless paid. This is costing the insurance industry a considerable sum of money, following the failure of Vehicle and General in 1971.
1234 However, the only way in which the Motor Insurers Bureau has been able to ensure that these claims are paid is to pay them themselves at the expense of the rest of the insurance industry, by taking an assignment of the policyholders' rights in liquidation. Ultimately, very many years hence, the Motor Insurers Bureau may get some of this money back from the liquidator. In the meantime—and it is a very long "meantime"—the insurance industry is paying out millions of pounds.
Some may say that this does not matter —that in the end the insurance companies will get the money to which they are entitled, and that in the meantime the policyholders are being paid. There is some truth in this, but the matter does not end there. The Motor Insurers Bureau applies only to third-party personal injury claims on motor policies. The guarantee scheme proposed in this Bill extends only to personal insurance, and only at the 90 per cent. level for non-compulsory cover. If a man who is working on his own account has his workshop burned down and the insurance company goes into liquidation before his fire claim is paid, if he happens to be trading as a limited company—and many very small firms do this for a variety of reasons—he gets no protection at all from the guarantee scheme in the Bill. He has to claim in the liquidation, and probably he will be ruined. Even if he gets 90 per cent. of his claim, he has to wait for 10 years.
At this point I hasten to add that I do not suggest that the guarantee scheme should be extended to insurance by limited companies. This would be entirely the wrong way to go about it. However, the Bill itself goes very much the wrong way about dealing with this problem, because the Bill does nothing about the liquidation laws as they apply to insurance companies. The scheme in the Bill gives only a very limited form of guaranteed protection to only a proportion of policyholders with insurance claims outstanding against a failed company—and not a very large proportion at that. Moreover, it gives even this limited form of protection at the expense of the policyholders in the other insurance companies who, under the provisions in the Bill, will have to pay out the whole cost of meeting these outstanding claims—sometimes 1235 at the 90 per cent. level, of course—and possibly will get something back out of the liquidation many years later.
The cause of all the trouble is the fact that in this country policyholders with outstanding claims at the time of liquidation—for example, a man's house has been burned down—have no prior claim in the liquidation as against all the other creditors. The general liquidation laws apply and this stops the liquidator from paying out those outstanding claims early in the liquidation, even if he is given an indemnity. In most other countries, of course, outstanding insurance claims have priority in liquidation, so that problem does not arise. What will happen in the future I do not know.
Outside the industry it may not be realised that if an insurance company fails—and here I am talking not about a life insurance company, but about a company concerned with fire, accident and motor insurance—then, unless the Department of Trade has been extremely slow in intervening when the company started to go downhill, the assets of the company are normally quite sufficient to cover the outstanding insurance claims. Your Lordships may ask how that comes about. It is because an insurance company has to have reserves to cover not only claims which have arisen but have not yet been paid, but also an appropriate portion of the last premium which is received on each policy involved.
When someone pays, say, a £20 premium on his house fire policy then, if the insurance company makes up its accounts a few weeks later, it will have to keep most of that £20 in hand to cover the risk for the remainder of the period until the next premium falls due. In liquidation, the holders of such policies have a statutory claim for a proportionate part of the last premium paid, although as this claim only ranks along with other creditors it is therefore not normally paid in full. If outstanding claims arc given priority, it may mean that a person receives a refund of, say, £7 instead of £9 on a £10 claim for a part refund of premium. So that a person with an outstanding fire claim of £10,000 on his house can be paid in full, and moreover can be paid quickly instead of receiving £8,000 and not receiving that until many years later.
1236 I hope my noble friend will not suggest that this series of Amendments, because it involves a small crucially important change in the liquidation laws as they apply to insurance companies, is inappropriate to this Bill. In my opinion, they are very appropriate. The Bill is headed "Policyholders Protection Bill" and the Amendments proposed would include the policyholders protection to a much greater extent than is provided for in the Bill. In most cases, they would enable all outstanding insurance claims on all non-life policies to be paid in full, whereas the provisions in the Bill provide only 90 per cent. except on compulsory insurance for some policies. The Amendments would also mean that the payment of these outstanding claims would come out of the assets of the failed company, and not out of the pockets of the blameless policyholders in other insurance companies. If the assets of the failed company were insufficient, there would still be the guarantee scheme in the Bill to fall back on.
I suggest that these Amendments do not apply to life insurance. My noble friends and I have a similar Amendment to Clause 10 which covers claims on life insurance policies which have arisen before the date of liquidation and which have not been paid. The main provisions relating to life insurance are in Clause 11, and here we agree with the main provisions of that clause, which provide for the transfer to another insurance company of life insurance policies in force when the company failed, or the issue of substituted policies by another insurance company or companies. This is clearly the most satisfactory way of dealing with life insurance policies in force in a company which fails.
We have tabled a number of other Amendments to Clause 11 but they cover a different purpose. I regard this series of Amendments relating to non life-assurance, of which this Amendment is the first, as being of the greatest importance. They will greatly improve the protection given to policyholders in insurance companies which fail, and they will do so in most cases without charging blameless policyholders in other companies with the cost. I apologise for the length and range of the comments I have made, but I felt it necessary so to do because it is important at this stage that 1237 your Lordships should be fully aware of the purpose of these Amendments. I beg to move.

§ Lord BESWICK
I was hoping that there would be some further light shed upon this subject by noble Lords opposite. At the outset, I expressed the hope that with Amendment No. 13 my noble friend would take Amendments Nos. 14, 16, 17, 21, 22, 24, 25, 28, 29, 45, 51 and the new Clauses 69 and 70 together, but I gather that he is speaking only to Amendments Nos. 13, 17, 21, 25, 45, 51 and 69.

§ Lord PEDDIE
That is so.

§ Lord BESWICK
The noble Lord has emphasised that he does not wish to deal with the life insurance problem in this group. I have undertaken to consider what my noble friend has said, and certainly I will do that very thing. He has spelled out in considerable detail what he has in mind, what he is seeking to do and why he is seeking to do it. As I look at it, the purpose of the Amendment is reasonably simple. My noble friend wishes to restrict the manner in which the Board may exercise their duties in relation to general business, and instead of making payments themselves to secure their duty by indemnifying the liquidator so that 90 per cent. of any relevant liability is Paid to or on behalf of the policyholder by the liquidator. For a number of reasons, I am advised that this would be impracticable and I will indicate those reasons so that we may both go away and consider what has been said.
I am told that it would be impracticable to do it in the way suggested by my noble friend, solely on the basis of indemnities by the Board to the liquidator. First, the liquidator might have insufficient assests to meet all liabilities to policyholders to the extent of 90 per cent., so that the policyholders would never receive the full 90 per cent. Secondly, he might be unable to realise the asset quickly enough to make the payment promptly. Either of these circumstances could give rise to long delays in the making of payments to policyholders. On the other hand, the Government's proposals are designed explicitly to avoid such distressing delays.
Under present law—I know my noble friend is proposing to change the law— 1238 there would be no compulsion on the liquidator to accept the indemnity or to make payments under it, and there might well be circumstances in which he would decline to do so on grounds of prejudice to the interests of other creditors. The proposers, my noble friend among them, have attempted to deal with this point under the new Clauses 69 and 70 to which we shall turn later, although my noble friend was referring only to the new Clause, Amendment 70. The new clause under Amendment No. 69 applies in relation to general business, and in a winding-up would have the effect of giving protected policyholders priority over non-protected policyholders and other ordinary creditors.
I suggest this really is not acceptable for the following reasons. The noble Lord said that he hoped I would not say that this means a change in the basic law under which the liquidator now operates. But as he recognises, it would indeed mean a quite fundamental change in the basic rule relating to the priority of creditors in a winding-up, that ordinary creditors rank equally. It would result, in effect, in money which, under the present law would have been paid to non-protected policyholders and other creditors, being used to compensate protected policyholders. This would be quite inequitable. Secondly, the effect would be to worsen substantially 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, and it could have the effect, in the event, of damaging severely the conduct of companies in the insurance world. Indeed, creditors might well seek to counteract the effect of the clause by insisting on the provision of security for their debts, which would give them priority over protected policyholders. If we came to that rather convoluted situation, the second positon would be worse than the first. Thirdly, the clause would worsen the position of policyholders to whom the protection of the Bill does not extend; for example, the marine aviation and transport policyholders, and overseas policyholders.
Finally, the clause does not appear even to achieve fully the objectives set out in Clauses 6 to 8. No provision is made for ensuring that compulsory insurance policyholders receive 100 per cent. 1239 of their claims, which we have all agreed —and the insurance world generally have agreed—would be equitable. If we have compulsory insurance, we have said they should be protected up to 100 per cent. of their claims. Further, in the event of funds available to the liquidator being insufficient to pay to protected policyholders up to 90 per cent., no provision is made for their receiving the balance.
That is the case against the Amendment. It is a complicated case. I have no doubt that noble Lords opposite, who are following it with such keen attention, have understood it perfectly, but it may well be that they will want to read it. Under the arrangement that we have we do not come to Amendment No. 69 until Thursday. If my noble friend feels I have not answered the matter properly, or that there are points he would like to raise again on Amendment No. 69, we shall come to it on Thursday, when we can return to the matter.

Lord PEDDLE
We can certainly return to this point. I have no intention of pressing it at this stage, for obvious reasons. The whole subject is one of some complexity, and the Committee should have an opportunity to study all the arguments. I shall return to those arguments. I cannot accept the point made by my noble friend that the general purpose behind this series of Amendments is somewhat outside the scope of the Bill. I do not think it is. The purpose of the Bill is to bring about greater protection, and, in consequence, that is what it has achieved. In withdrawing the Amendment at this stage, I hope that the Minister will make himself available, as he indicated previously, for discussions on the matter, so that your Lordships will have a full opportunity to dealing adequately with the matter on Report.

§ Lord BESWICK
May I make just one point, in order to be fair to the Committee. I have undertaken that we would find time and the means of discussing with all those who have an interest in parts of the Bill before Report stage. What I am afraid I cannot undertake, simply because of time, is to do so before Thursday. It so happens that in this case, because we have taken Amendment No. 69 with this—

1240

§ Lord PEDDIE
If I may interrupt, I was not referring to discussions taking place before Thursday. I appreciate the difficulty. I mean before Report stage.

§ Lord BESWICK
I am anxious not to appear to be promising more than I can fulfil.

Lord HAWKE
Would the noble Lord take up with his advisers whether he is correct in saying that the Amendment would prejudice the rights of ordinary creditors? I think they would remain unchanged because, instead of the money paid out to the policyholder, the liquidator would have an I.O.U. from the Board, which I would have thought was exactly the same value as money paid out.

§ Lord BESWICK
I have expressed a different view, but once again, as the question has arisen, I will look at it with especial care.
Amendment, by leave, withdrawn.

§ 5.27 p.m.

§ Lord BELSTEAD moved Amendment No. 18: Page 6, leave out line 5 and insert (" all of whom are individuals").

§ The noble Lord said: It would seem to be possible for corporate bodies to be included under the definition of a private policyholder, provided that they included with them just one individual in the insurance cover. This does not seem to me to carry out what I would think was the definition of a private policyholder. Can the Government give us their views as to why the definition has been worded in this way?

§ Lord WINTERBOTTOM
Is the noble Lord willing that we should take Amendment No. 19 together with this Amendment?

§ Lord BELSTEAD
Certainly.

§ Lord WINTERBOTTOM
As I understand it, these two Amendments are alternative means of achieving the same effect, which is modifying the definition of "private policyholder" in Clause 6(7) so as to exclude from protection under the Bill holders of general business policies who are partnerships, or ether unincorporated bodies, any member of which is a corporate body, in cases where the 1241 insurance company's liability is not subject to compulsory insurance. Their purpose, therefore, is to make certain that except where insurance is compulsory, the benefit of the protection under the Bill in respect of such general business policies never goes to corporate bodies. Although the subsection which we are talking about occurs in Clause 6, which relates to compulsory insurance policies, its definition of the term "private policyholder "applies to the use of the term in Clause 8(2) as well as in Clause 6(6). It straddles two clauses.
Where insurance is not compulsory, protection under the Bill in the sphere of general business is confined—which I am certain will satisfy many of your Lordships—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. The partnership must contain one individual. The requirement that at least one member must be an individual is designed to avoid several incorporated companies joining together, thus becoming eligible for protection. This is to protect a coming together of corporate bodies other than private policyholders so that in coming together they might, unless this clause of the Bill as it stands, existed, become eligible for protection, which I think the Committee wishes to avoid.
In preparing this definition, we had in mind the case of an individual member of a partnership or other unincorporated body, some of whose fellows may be limited companies. One can think of an organisation consisting of individuals together linked with limited companies, and unlike his corporate fellow members, that individual would have unlimited personal liability for his share of any claims made against the body. The individual would have unlimited claims against himself, whereas the incorporated bodies might be protected. If the insurance company were in liquidation, he could suffer hardships and merit the Board's protection no less than any other policyholder. I should like to receive the reaction of the Committee to this proposal. We will consider any points made, to see whether we can propose an Amendment on Report which goes at least some way to meet the noble Lord's 1242 Amendments, while still maintaining our own aim which I have tried to explain.

§ Viscount SIMON
I found that explanation very interesting, but I would have thought that the general concept of this Bill, as I think the noble Lord, Lord Aldington, said earlier, was that we are trying to protect individual people. There may be, as the noble Lord, Lord Winterbottom, has said, a special reason for protecting partnerships because the individual partners have unlimited liability. But partnerships are generally, I think, business partnerships, and I would not have thought that it was really the intention of this Bill to protect such people. I thought when I first read it that perhaps it was because of some curious instance to do with hire-purchase, that a hire-purchase company might have an interest in the insurance policy or something of that sort. Apart from that. it seems to me that it would be much better for the private policyholder to be an individual, and leave it at that. I do not know whether the noble Lord would like to comment on that.

§ Lord DRUMALBYN
Before the noble Lord comments, may I put this point. I would not see an objection to there being a liability that a private policy could also be held by a partnership. But is the noble Lord aware that there is European legislation—it may be a Directive; I am not quite certain of the position of the document—which would allow mixed private individuals and companies to operate, not for profit but as an overall arrangement? I wonder whether in thinking this over the noble Lord would take into consideration this Instrument of the EEC, which has not been approved yet.

§ Lord WINTERBOTTOM
; Yes, I most certainly will. I must say that the situation I have tried to describe is known to me. I think nowadays there is a tendency for personal and individual partnerships, having to deal with contracts of such magnitude, to try to move away from the total personal liability that a partnership can apply. I know of a number of cases where partnerships are hiving off the companies associated with the partnership; working organisations are brought into being—to deal with, for instance, major contracts in the Arab world—which are part 1243 incorporated bodies. It is that sort of hybrid situation—although I must be careful of the use of this word—of a new type of organisation which we believe needs a proposal of this sort to cover the individual within the mixed organisation.

§ Lord BELSTEAD
I am still worried about the basic point that an individual could join with large companies and find cover where it was never intended. The noble Lord has been good enough to say that he will look at this again. I think much of what has been said on this Amendment could be read with profit. Unless any other noble Lord wishes to speak, I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.

§ 5.33 p.m.

§ Lord BELSTEAD
Clause 6(1) lists the current range of compulsory classes of insurance cover which fall within the scope of this Bill. It is just possible that in future further classes of insurance may be made compulsory, and the simple purpose of this Amendment is to permit the Secretary of State to bring such a class within the scope of the Bill if that is necessary, I beg toe.

§ Amendment moved—

§ Page 6, line 11, at end insert— ("( ) The Secretary of State may by order made by statutory instrument from time to time amend subsection (1) above so as to secure that it refers to all categories of liability for the time being required under any enactment to be covered by insurance or (as the case may be) by insurance or by some other provision for securing its discharge.")—(Lord Belstead.)

§ Lord BESWICK
If I had a hat I suppose I ought to throw it in the air in welcome of this Amendment; it is the first time I have had it suggested that we are not going far enough. I am grateful to the noble Lord; let him not misunderstand what I am saying. However, the Amendment is unnecessary because provision is already made in Clause 14. It would be possible to do what he wishes by the provisions of Clause 14. On the other hand, Clause 14 may well come under fire, and if it were eliminated it would be necessary to have an Amendment of this kind; but it would be necessary to have a somewhat differently worded Amendment if Clause 14 fell. Perhaps the noble Lord would bear in mind the fate of Clause 14 and return 1244 to this with a suitably worded Amendment if, as I hope will not be the case, we are bereft of the powers in Clause 14.

§ Lord BELSTEAD
I am grateful to the noble Lord. He must not throw his hat too high in the air; as he says, it is just possible that Clause 14 will not get beyond its childhood. If that occurs, then, as the noble Lord suggests, we can come back to this point. I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.

§ Clause 6 agreed to.

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

§ Lord PEDDIE had given Notice of his intention to move Amendment No. 21: Page 6, line 24, after (" person ") insert (" by the liquidator from the assets of the company in liquidation ")

§ Baroness FISHER of REDNAL
I am in a bit of a quandary, but I think I will get my points clear as I go along. The idea of this clause before us—

§ Lord BESWICK
If I may interrupt my friend, I thought we had discussed this with the Amendments that the noble Lord, Lord Peddie, moved, and it was agreed that we leave it until Amendment No. 69 on Thursday.

§ Baroness FISHER of REDNAL
I am speaking for my noble friend Lord Peddie. If my noble friend Lord Beswick tells me that he accepted that arrangement, I too will accept it.

§ Clause 7 agreed to.

§ Clauses 8 and 9 agreed to.

§ Clause 10 [Long term policies]:

§ 5.39 p.m.

§ Lord LYELL moved Amendment No. 26: Page 7, line 21, leave out (" liability of a company in liquidation towards ") and insert (" contractual obligation already incurred by a company in liquidation to make a payment to ")

§ The noble Lord said: I should commence by declaring a slight interest in this Bill, in that I am an underwriting member of Lloyd's; beyond that I have no further substantial interest in any of the activities of this Bill. As drafted, I 1245 believe this Clause 10, which relates to life policies, long term policies, and in particular the word "liability" does not specify exactly what is due to the policyholders who may or may not be affected by the collapse of the company. As some of us, and the insurance industry, understand the position at present, the policyholder of a life company is protected up to and including the date of the petition for winding up of the company. But as we heard earlier from the noble Lord, Lord Peddie, this is the case for insurance which is compulsory, which, as far as I understand, is motor and fire and other forms of insurance; but it is not necessarily the case, as we understand it, for life policies. Any claim for the refund of a premium of a life policy referring to the remainder of the period of a policy is not protected by this Bill, and goes forward as an ordinary creditor in the liquidation procedure. We understand that this is also how the Department of Trade understand the position.

§ We suggest that this Amendment would clarify this point, and would make certain that the position of a policyholder could be clearly defined. Where the Amendment states, "contractual obligation already incurred ", it may appear to be a little legalistic, but I hope that it makes the position clearer. The clause will make clear that any accrual of interest is covered, whereas any obligation which could arise—not does, but could—as a result of the policy after the commencement of liquidation proceedings will not rank as a protected policy. We believe that the Amendment will make clear that the clause means what it is intended to mean. I beg to move.

§ Lord WINTERBOTTOM
Does the noble Lord agree to taking with this Amendment, Amendments Nos. 46 and 49?

§ Lord LYELL
Of course, and I apologise for not mentioning it.

§ Lord WINTERBOTTOM
I am grateful to the noble Lord for being so helpful. As I understand it, the object of Amendment No. 26, together with Amendments Nos. 46 and 49, is to make certain that the position of the policyholder is more clearly defined at the time 1246 of liquidation. We see no need for these Amendments, because their effect appears to be the same as that of the present text. It is a question of how you read the text, but we believe that their meaning is the same. We believe that they are undesirable in that they introduce phraseology out of step with that used elsewhere in the Bill; for example, in Clause 6(4) and (6), Clause 7, Clause 8(2) and Clause 9. I am advised, too, that the drafting of the Amendments is in other respects unsatisfactory; for example, the expression "contractual obligation "incorrectly implies that there can be obligations under long term policies that are not not contractual; and the word "already is superfluous and confusing.
I have every sympathy with the noble Lord in taking on the job of a Parliamentary draftsman, but the advice that I am given is that in that capacity he has not performed so well, though we are in complete agreement with the objectives for which he is trying to draft. There is another fear that arises from this problem of drafting; that the term "liability" is ambiguous since often in the long term field it is used to refer to prospective and contingent liabilities as well as to liabilities incurred; I suppose a sort of double entendre. In this context in these clauses the term "liabilities" clearly refers only to liabilities incurred. I do not know whether I am able to satisfy the noble Lord, and I should hate to have an argument on problems of drafting. But if we can take it away and look at it with our advisers, we shall do so and see whether the noble Lord's Amendments are clearer and better.

§ Lord LYELL
I am grateful for the very pleasant comments that the noble Lord has made. I, too, would not wish to enter into any dispute over logic, but it appears that the noble Lord used a double negative in that he said it was "not not contractual ". I understand that this is leading us into deeper fields of confusion, and I think it would be the wish of the Committee that we should leave it here and withdraw the Amendment.
Amendment, by leave, withdrawn.

§ Clause 10 agreed to.

1247

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

§ 5.54 p.m.

§ Baroness FISHER of REDNAL moved Amendment No. 30:

§ Page 7, line 44, at end insert— (" ( ) If in order to secure or facilitate the transfer of the long-term business of the company in liquidation, or of any part of that business to another authorised insurance company in accordance with subsection (2) above, the Board makes any payment to the liquidator of the company in liquidation or to that other authorised insurance company then the Board shall ensure that the terms of the transfer shall secure to policyholders in respect of protected policies included in the business transferred 90 per cent. but not more than 90 per cent. of any sums which would have fallen due to them, in accordance with those policies as mentioned in subsection (1) above and the Board shall also ensure that the terms of the transfer shall not vary the terms of protected policies included in the business transferred other than to reduce by 10 per cent. the sums which would have fallen due to policyholders under those policies as aforesaid.")

§ The noble Baroness said: My noble friend Lord Peddie has left me holding the baby, never mind the insurance policy. Clause 11 deals with the life insurances that are in force at the time of liquidation, and this is a new clause.

§ Lord ABERDARE
May I say a word before the noble Lord replies? I do not know whether the noble Baroness can confirm this, but, as I understand it, our Amendment No. 34 covers much the same ground as the two Amendments Nos. 30 and 31. I wonder whether we could discuss these Amendments together. I do not know whether the noble Lord, Lord Beswick, has any view as to whether these three Amendments can go together.

§ Lord BESWICK
As I see it, certainly Amendments Nos. 30 and 31 go together, but I should have thought that their effect would be somewhat different from the effect of Amendment No. 34. They certainly cover the same ground. Would it be convenient if I were to give the answer to Amendment No. 30, which I believe my noble friend has moved?

§ Baroness FISHER of REDNAL
Yes. What we are trying to find out from the clause is about the 90 per cent., and how the assets will cover 90 per cent. of the liabilities.

§ Lord BESWICK
May I say what would be the effect in the view of the 1248 Government, and that would help in consideration of this matter. In the Government's view, this Amendment would be unreasonably harsh to policyholders and would unduly restrict the Board's functions under Clause 11. The purpose of these subsections of Clause 11 is to protect the policyholder of a life assurance company in liquidation by securing for him a continuation of the insurance cover he would still have had but for the liquidation. The Government have accepted the contention of the industry that the Board's duty to provide this protection should extend only to securing 90 per cent. of the benefits promised under a policy. It is one thing to limit a duty to securing 90 per cent. of a benefit for a policyholder, but quite another to impose a duty to ensure that the policyholder cannot receive more than 90 per cent. The Bill's purpose is to protect, but not to penalise.
The principle of the Amendment could be justified only by the doctrine that all policyholders of insolvent life companies were somehow guilty of the company's failure and are in some respects to be punished. I do not think that that is what my noble friend seeks to do. If I assure her that the effect would be to prevent a policyholder from securing more than 90 per cent., even though, in certain circumstances, there was the availability to pay more than 90 per cent., I hope that she will accept that fact and withdraw the Amendment.

§ Baroness FISHER of REDNAL
Could my noble friend enlarge on the people who have insurances—they might be annuities or insurance on housing—and they do not want the 90 per cent, level paid to them by form of guarantee; they want a continuation of insurance. Has my noble friend any observations on that point? The payment of 90 per cent. is not going to be advantageous to them.

§ Lord BESWICK
Possibly my noble friend has misunderstood the intention here. It is not just a question of making a once-for-all payment of 90 per cent. All benefits would be scaled down to 90 per cent. Continuity would be guaranteed, but only up to the 90 per cent.

§ Baroness FISHER of REDNAL
I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.

1249

§ 5.51 p.m.

§ Lord ABERDARE moved Amendment No. 34:

§ Page 8, line 32, at end insert— ("( ) In taking any measures to secure the object mentioned in subsection (1) above the Board shall, so far as it appears to them to be practicable, ensure that the amount (if any), which they raise by means of a levy under section 17 below shall not exceed the amount which would have been required if the Board had acted in accordance with subsection (6) below.")

§ The noble Lord said: Clause 11, which we are discussing, suggests three ways in which special provision may be made for future benefits under the long-term policies of a company in liquidation. The first way in which this can be done is by transferring the existing policy to another company which takes over 90 per cent. of the obligations of the policy as it exists. The second way in which the Board can act is to arrange for another company to issue substitute policies for the original policy, but again guaranteeing 90 per cent. of the benefits of the original policy. The third method which the Board can use is to make a cash payment to the policyholder equal to 90 per cent. of the current value of the existing policy.

§ By this Amendment we seek to ensure that if the Board make use of either of the first two methods—transferring the policy or issuing a new policy—then the maxi-mum amount which should be borne by the levy at the disposal of the Board should be 90 per cent. of the cash value, which is arrived at under subsection (6). The net effect is that this would ensure that the cost to the Board of making the alternative arrangements under subsection (2) or subsection (3) would not impose an additional burden on policyholders in sound companies. I beg to move.

§ Lord BESWICK
My advice is that this Amendment is misconceived on grounds both of principle and of practice. As I am advised, the situation under present law is that the cover provided by a policy lapses at the beginning of a company's liquidation—we all accept that—and all that a policyholder is entitled to thereafter is the value of his policy as at the beginning of the liquidation in the winding up. 'This will be a capital sum calculated actuarily with reference to the terms of the policy and to interest rates and actuarial mortality 1250 tables approved by the court. Since the policyholder's insurance cover will have ended with the beginning of the liquidation, his claim in the winding up will be unaffected by anything that happens to him after that date—that is under present law. Moreover, if between his taking the policy out and the beginning of the liquidation his circumstances have substantially changed—for example, if he has contracted a serious illness—he may well be unable, without prohibitive expense, to obtain equivalent cover with a sound company. I think that is understood.
The primary object of the protection scheme in relation to long-term business is therefore more than just to safeguard or accelerate payment with the policyholder's present legal entitlement in the liquidation. It is, whenever possible, to secure him equivalent, or nearly equivalent, alternative cover. Clause 11(1) lays on the Board a duty to work for this objective and empowers the Board to take certain specific measures described to this end in subsections (2) and (4). In the Government's view the primary duty of the Board when a life assurance company goes into liquidation must be in collaboration with the liquidator to secure the continuation of a policyholder's insurance cover, at a reduced level, either by facilitating the transfer of the policy to a sound company or by arranging for the issue of suitable substitute policies. This is the point I tried to make to my noble friend Lady Fisher and I hope she accepts this spelling out of it. Only if they fail in this should they take the alternative and less satisfactory course of guaranteeing the policyholder 90 per cent. of the value attributed to his policy at the winding up.
The Amendment seems to put the Board's powers the wrong way round. I would respectfully suggest to the noble Lord, Lord Aberdare, that the Amendment seems to raise practical problems which lead to delay in assisting policyholders. It may well take a liquidator many months to assess the claims of policyholders in the winding up of a life assurance company. Moreover, the liquidator may well, in practice, postpone taking the necessary steps to determine the claims of policyholders while there remains a prospect of the company's being transferred as a going concern. The Board will therefore probably not know the amount it may be required to pay out under subsection (6) during the early 1251 months of the liquidation when it should be working hard to secure continuation of the policyholder's cover in accordance with subsection (1).
There is no fear that the Board will be forced to go to unreasonable lengths to fulfil the object of Clause 11(1). Subsection (6), as drafted, provides that the alternative procedure set out in that subsection should conic into force where it appears to the Board that it is not reasonably practicable to secure the object mentioned in subsection (1)". We should bear in mind that the Board which will determine whether it is reasonably practicable would be a board composed, as to the majority, of persons from the insurance business. In order to ensure that it does not have to pay excessively towards the transfer or replacement of the policies of protected long-term policyholders, the Board will presumably invite bids from a number of companies, and I am told—although there may well be here persons who can comment on this—that there is plenty of competition in this field and the Board would be able to select the cheapest.

§ Lord ABERDARE
I am grateful to the noble Lord. I do not think my Amendment is misconceived. Having listened to what he said, I think we are both moving on the same lines. We both agree that the best thing of all will be if the policyholder can have his policy transferred to another company or, failing that, a new policy can be issued by another company guaranteeing him 90 per cent. All I was seeking to do, on the point to which the noble Lord came last was to limit the Board on the expense of doing this—limiting it to what would have been the maximum expense in paying 90 per cent. in cash. What did make some impact on me was that the noble Lord said that this might cause some delay; it might be some time before the actual value of the policyholder's interest in the company that had failed was known and therefore this might create some difficulty in determining what the 90 per cent. was in relation to the transfer of the policy. It would be wise to look more carefully at what the noble Lord has told me and consider whether or not I think it is misconceived and whether or not we should return to it 1252 later. I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.

§ 6.0 p.m.

§ Lord PEDDLE moved Amendment No. 35:

§ Page 8, line 32, at end insert: ("( ) If, after having obtained an indemnity from the Board, the liquidator of a company in liquidation makes payments to policyholders in accordance with subsection (5) above, then a condition precedent to such payments shall be that the holders of the policies on which such payments are made shall have paid to the company or to the liquidator all premiums which have fallen due, or which would have fallen due if the company had not gone into liquidation, up to the date on which the liquidator makes payment to the policyholder.")

§ The noble Lord said: This proposed new provision provides for the continuance of payment of premiums if the existing business of the insurance company in liquidation is gradually run off in accordance with Clause 11(5). There is no such provision in the Bill at present. Clause 11(8) permits the Board to require the payment or part payment of premiums, but this is in our opinion far less satisfactory than a provision specifically requiring premiums to be continued. I beg to move.

§ Lord WINTERBOTTOM
I will, with the agreement of the noble Lord, Lord Peddie, deal with this Amendment and Amendment No. 38 at the same time.

Lord PEDDLE
I agree to that course.

§ Lord WINTERBOTTOM
These two Amendments have the effect, as is the noble Lord's intention, of rewriting subsection (8) of this clause, which provides that the Board's duties to assist a policyholder under this clause are to be subject to the policyholder's compliance with any conditions the Board may impose in respect of the payment of premiums that would have fallen due under the policy but for the liquidation. The Amendments are partly consequential on the Amendments proposed to subsection (5) that would require the Board's assistance to policyholders under that subsection to be given solely by means of an indemnity from the Board to the liquidator.
There is a further two-fold effect. First, the Board's power to make their assistance to policyholders under subsection 1253 (5) conditional on the policyholder's payment of premiums due up to that time is transformed into a statutory computation precedent to such assistance; and, secondly, the power of the Board to make their assistance to policyholders under other provisions of Clause 11, apart from subsection (5), conditional on the policyholder's payment of premiums is lost. In so far as these Amendments are consequential to the Amendments already proposed to subsection (5) of Clause 11—that is, the Amendments providing that the Board's assistance to policyholders under that subsection should be given solely by means of an indemnity from the Board to the liquidator—they have already been covered in the discussion of those Amendments.
The present Amendments also have the effect of making the up-to-date payment of premiums in respect of a policy attracting the Board's assistance under subsection (5) a statutory condition precedent on such assistance. I do not believe that there is any difference of principle here between the proposers of the Amendment and the Government. We certainly envisage that the Board would normally make its assistance under this subsection of Clause 11 conditional upon the payment of premiums due up to that time. Subsection (8) as drafted by the Government leaves no doubt about the Board's powers to do this. This is an area, however, where a rigid statutory requirement seems inappropriate and undesirable. We are setting up a responsible body to administer the scheme and we believe it better, having equipped the Board with the necessary powers, to leave the detailed administration of such matters to its discretion in the light of individual cases. The effect of the Amendments which we are discussing would also be to delete any reference to the Board's powers to make their assistance to policyholders under other provisions of Clause 11 conditional on the policyholders' payment of premiums. It seems to the Government important that the Board, in exercising its power to arrange the transfer of business and the issue of substitute policies under subsections (2), (3) and (4) should be able, if it judges it appropriate, to impose conditions concerning the payment of premiums, and it is for this reason that we believe that these Amendments are also misconceived.

1254

§ Lord PEDDIE
I am really not prepared to accept in its entirety the point of view expressed by my noble friend, but I am quite prepared to study it and return to the subject later. In the meantime, I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.

§ Baroness LLEWELYN-DAVIES
With the permission of the Committee, may I say that as, through the usual channels, it had been agreed that we should not go beyond Clause 14 tonight, and as the business has gone very much faster than any of us had expected, I have consulted with the powers that be and it has been decided that it would be better to cancel dinner tonight. As there are so few Members about, and as it is such a lovely evening, it was felt that we should lose a lot of money.

§ Lord ABERDARE moved Amendment No. 37: Page 8, line 43, leave out subsection (7).

§ The noble Lord said: The purpose of this Amendment is to try to discover what this subsection means. To us it is totally incomprehensive. As I was saying earlier, we have under this clause three methods of helping a policyholder: the transfer of his policy to another company; the issuing of a new policy by another company; and the cash payment equal to 90 per cent. of the value attributed to his policy under subsection (6). What, then, is this strange subsection (7)? The Secretary of State comes into it again by making regulations which require the Board to pay to the policyholder at his option presumably instead of the sum mentioned in subsection (6), …a sum equal to 90 per cent. of the value of his policy determined in such manner as the regulations may provide. We have not heard what these regulations are, we do not know what the intention is, how this arises or what this subsection means.

§ Subsection (6) is quite clear: there will he a winding-up and the value attributed to the policy will be determined presumably by an independent arbiter. But what is this other value which is to be put on his policy and which, instead of being determined by an independent arbiter, will apparently be determined by the Secretary of State? Moreover, there 1255 is a further provision which says that the Secretary of State may …make such provision as appears to him to be appropriate in respect to the time within which and the manner in which the Board are to perform any of their functions under this section …". This is the burden of my plea: could we please have an explanation of this subsection before we decide whether it is good or bad?

§ Lord CACCIA
I join with the plea made by the noble Lord, Lord Aberdare, and I am glad that somebody else has got up to say that he really cannot follow what is intended by this piece of proposed legislation. Does it offer the policyholder an alternative policy value to that fairly arrived at by an independent actuary under Clause 11(6)? Is that the object? That is all I can read into it. I may be entirely wrong, which illustrates, if I am wrong, that the clause as drafted is difficult to follow, even by those who are involved in the industry.

§ Lord BESWICK
The noble Lord, Lord Aberdare, said that the reason for the Amendment was to try to discover what the subsection meant. I thought that it had been tabled simply in relation to this question of the power of the Secretary of State—that it had been tabled on the good principle that anything that is done to extend that power is to be opposed. In this case I do not think that either the noble Lord, Lord Aberdare, or his noble friend, Lord Belstead, would oppose the provision of this power when I have explained what is involved. Subsection (7) empowers the Secretary of State to make regulations of two kinds. First, in paragraph (a), it provides for regulations requiring the Board, in a case to which subsection (6) applies, to pay the policyholder, if he wishes, 90 per cent. of the value of his policy, as determined in accordance with the regulations, instead of 90 per cent. of his claim in respect of the value admitted in the winding-up. I hope that that is clear enough.
The reason for this provision is that the current law relating to the valuation of policies in a winding-up is uncertain and possibly defective. Its application is now the subject of some discussion in the courts. It is defective in the sense that it may give lower value for certain long-term policies in a winding-up than the 1256 policyholder might reasonably have expected. It will be the subject of court proceedings arising from the liquidation of Nation Life, for example. These will take place during the summer, but the result may well not be determined before Parliament has finished consideration of the Bill. Moreover, under the current law applications have to be made to the court for directions as to interest rates and mortality tables to be adopted in the valuation of policies. In the present circumstances, that could be a very lengthy process. Consideration is being given to whether the rules for the winding-up of insurance companies which could be made under the powers provided by Section 51 of the 1974 Act would be sufficient to remedy the defects of the existing law.
This is an extremely complex matter, requiring extensive study by the appropriate branches of Government and the insurance industry. It may take a considerable time. In view of this, and of the fear that the present winding-up rules may be inequitable or lead to delay, it was felt prudent to provide here for an alternative method of assessing the value of policies for the purpose of the Policyholders Protection Beard's functions under this Part of the Bill. I should have thought that that was a reasonable objective to set before the Board, and again I emphasise that the Board will contain representatives of the insurance industry as a whole. They will be seeking to see fair play in an area where, at the moment, there is a good deal of discussion as to how the law operates.
Paragraph (b) provides for regulations with respect to the timetable and manner of the Board's performance of its functions under the clause. For example, it may, in the light of experience, prove desirable to set time limits for commencement or completion of the Board's attempts to take the measures provided for in subsections (2) to (4) or to lay down a procedure including a timescale for the Board's offer of an option of a capital sum calculated in accordance with any regulations made under paragraph (a). Of course, the usual provision applies that the regulations will have to come before Parliament.
I believe that it will be accepted here that we are dealing with a matter which is completely different in degree from the possibility of bringing in Lloyd's or any 1257 other entirely new concept or policy. This is almost a matter of administration. It gives flexibility at a time when there is some uncertainty as to the law. In the circumstances, I hope that even the noble Lord, Lord Aberdare, will accept that it is worth while to give the Secretary of State some degree of flexibility.

§ Lord DRUMALBYN
I am left in a little doubt as to the situation after the courts have settled how the valuations are to be conducted; in other words, what is the law on valuations on liquidation? Once the courts have decided what is the law, is it advisable to have two methods of determining what the valuation should be, as I understand would be the case? I can understand it as a transitional measure. It might be necessary to have an additional alternative method, of the Secretary of State determining by regulation what the valuation should be in these cases. But surely the method should not be different from valuations under the general law. I am not altogether persuaded by the noble Lord, Lord Beswick, that this is the right thing to do in the long term, though it may be right for a period. I suggest that, if he is to retain these powers. they should be retained with power to repeal or withdraw them when the law is fixed and determined and we know where we stand.

§ Lord BESWICK
It is not as if we were putting a requirement into the Bill to do something in a certain way—we are not. We are giving the Secretary of State a permissive power to deal with an interim situation or to clear up an area of doubt. If that area of doubt is cleared up by the findings of the court, the question of any other regulation will not arise. I should have thought that everyone would be happy then but, in case there is a likelihood of injustice or hardship, this has been written into the Bill.

§ Lord ABERDARE
I cannot help agreeing with my noble friend Lord Drumalbyn. This is a very difficult area and we do not know what the regulations will provide. I can see that there is a good case for this type of provision, and that it would mean that the policyholder might get quicker satisfaction on his claim than if he had to wait for the winding-up to be completed. I think 1258 there is that justification for it, but it is a little difficult to judge if one does not know what the regulations will provide.

§ Lord BESWICK
Of course the noble Lord does not know what the regulation will provide. It has not been laid. When it is laid, Parliament will know what it is to be and, if it is held to be unreasonable, we can vote against it. I know that there has been a good deal said about the unsatisfactory character of Parliamentary control over regulations but, in a matter of this kind, I should have thought that if the Secretary of State over-reached himself we should have no hesitation in putting the necessary curb on him.

§ Lord ABERDARE
Up to a point, yes. But, as the noble Lord himself said, there are weaknesses in these regulations in that one cannot amend them. They come in and, by that time, it is too late and one must either accept the whole lot or none. I wonder whether the noble Lord might consider, before we arrive at Report stage, whether, after consultation with the Board, we could insert something into the subsection. In that way, at least the regulations which the Secretary of State is to bring in will have been considered by the Board and any small difficulties which we, at the stage when it reached us, would not be able to amend, could have been discussed and possibly rectified before the regulations were laid. Perhaps the Minister could consider that before the next stage of the Bill.

§ Lord BESWICK
I am bound to say that that seems a constructive proposal. I shall see that it is considered.

Lord HAWKE
It seems to me that there is some slight difficulty here. The regulations will probably be laid before the court has decided what is the proper procedure in a winding-up. Therefore, for a time there will be two different systems of paying out the policyholder in the event of a liquidation. Parliament will not really be able to judge at the time whether or not the regulations will be fair. When the court has decided and the regulations still exist, the 'policyholder will have a choice and he will naturally choose the best. The fact that the regulations may provide him with something better than the court has provided will. 1259 mean that he will be paid by other policyholders a higher rate for his policy than the court would have decided for him.

§ Lord BESWICK
A number of hypothetical possibilities have bean put forward. It is conceivable that we shall get the worst of all worlds, but I do not feel that we should necessarily assume that that will happen.

§ Lord ABERDARE
I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.

§ Clause 11, as amended, agreed to.

§ Clause 12 [Disproportionate benefits under long term policies]:

§ Lord ABERDARE moved Amendment No. 39: Page 9, line 18, leave out (" are excessive ") and insert (" are or may be excessive").

§ The noble Lord said: Amendments Nos. 39 and 40 are simply to tighten up the wording. It is proposed to leave out "are excessive" and insert "are or may be excessive" to ensure that the Board refers the policy to an independent actuary. It is also proposed to replace the word "may" with the word "shall ". I beg to move.

§ Lord WINTERBOTTOM
The Government are grateful for the superior drafting skill of the noble Lord, and agree that the wording of the clause should be tightened up in the way proposed.

§ Lord ABERDARE
I am most grateful.

§ On Question, Amendment agreed to.

§ Lord ABERDARE: I beg to move Amendment No. 40 formally.

§ Amendment moved— Page 9, line 20, leave out (" may") and insert ("shall").—(Lord Aberdare.)

§ On Question, Amendment agreed to.

§ On Question, Whether Clause 12, as amended, shall stand part of the Bill?

§ Lord ABERDARE
I wish to make an inquiry about Clause 12. I wonder whether the noble Lord is in a position to comment on its general implications and how it will work? It seems to me that it will be a very difficult clause to put 1260 into effect. The independent actuary will have an extremely hard job. He will have to judge whether benefits provided under a policy are excessive and, thereby, I should have thought, will be passing judgment on the actuary who has been advising the company. I should not think this would be an easy task for him to perform.
I wonder whether the Government have consulted the Institute of Actuaries and whether the Institute is happy with this clause? I wonder also whether this is the sort of task that an independent actuary could perform? I regret that I have not given notice of this question, and I shall be quite happy if the noble Lord prefers to write to me about it. I thought I should raise it as a general question, on the basis of whether the clause is practical and whether the Institute of Actuaries thinks that this is a duty that an independent actuary could fulfil.

§ Clause 12, as amended, agreed to.

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

§ 6.24 p.m.

§ Lord LYELL moved Amendment No. 50: Page 11, line 18, after (" requiring ") insert (" or permitting ").

§ The noble Lord said: This Amendment is very similar in intention to Amendments Nos. 26, 46, and 49, to which I have already spoken, in that I hope it improves on the drafting of this clause. As we understand it, the clause allows the Board to incur a fairly large deficit in their operations by making any payments where the funds which they may have raised from either a levy or elsewhere are temporarily inadequate to meet the expenditure to which the Board are liable. The Committee will see that line 18 refers to "requiring the Board ", and the Amendment seeks to tighten up this subsection, so that we would hope that the clause will mean what we believe it is intended to mean. The Amendment does not have much of an effect, except that it merely postpones such expenditure as the Board are to carry out until such times as funds are available. This is very clearly indicated further down in the same subsection—in lines 30, 31, and 32. I 1261 hope that it is a fairly simple drafting Amendment and that we shall not get into the sort of trouble we got into earlier. I beg to move.

§ Lord WINTERBOTTOM
This is a little simpler than our previous exercise. As we understand it, the purpose of this subsection is to enable the Board to postpone the exercise of their duties in the unlikely event that the levies in any year prove insufficient. If the excess expenditure were very substantial, the Board would no doubt wish to postpone meeting it, and it would be right that they should do so. But the excess expenditure might be very small—perhaps a matter of a few hundred pounds. In such circumstances, it would be only sensible for the Board to borrow the extra money needed to meet the expenditure. However, if this Amendment is accepted, this course would be impossible. The Board would not be permitted to make any payment or incur any expenditure beyond what could be financed by the funds available to them; that is, any funds already in their possession, together with what they could raise through the levy. We find the Amendment impractical and unnecessary.
I sympathise with the desire to discourage the Board from incurring large forward commitments; indeed the Board themselves would hardly wish to do so. But if the expenditure arises as a result of duties imposed on the Board, it would have to be met eventually. It seems only right that the Board should have the flexibility to finance some of this expenditure by borrowing. I emphasise that, in any case, the provision is largely hypothetical, because the experience of the industry in regard to liquidation in recent years offers no reason to believe that the levies will not be more than ample to meet the Board's requirements. The subsection as it stands enables the Board to raise bridging finance and for this reason we believe that the Amendment is not necessary.

§ The Earl of ONSLOW
Can the noble Lord enlighten me on one small point? How much will this 1 per cent. of premium income raise?

§ Lord WINTERBOTTOM
I will write to the noble Earl on this point, if he agrees. There is a figure lost somewhere in my brief, but it exists.

1262

§ Lord LYELL
I am very grateful for the explanation given by the noble Lord. I might have thought that discussion would be very quickly hinged on what is small, substantial or large expenditure. But I agree with the noble Lord that at this stage we should not make too much of an issue of this, and we should not impinge on the flexibility of the Board which, we hope, will consist of a fairly sensible group of persons connected with the insurance industry. Therefore, at this stage I seek to withdraw the Amendment and have further discussions.
Amendment, by leave, withdrawn.

§ Clause 13 agreed to.

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

§ 6.30 p.m.

§ On Question, Whether Clause 14 shall stand part of the Bill?

§ Lord ABERDARE
We have made tremendous progress with the Committee stage and the Government have been very co-operative. I hope that they will now set the seal on their efforts by removing Clause 14, which, in our view, is highly objectionable in that it gives further sweeping powers to the Secretary of State, and potentially nullifies all the previous provisions of the Bill we have been considering, or at least could alter them in such a way as to make them quite different from what they are supposed to be.
The first subsection gives very wide powers. The second specifies in more particular matters what those powers should be. Paragraph (a) extends or restricts the classes or descriptions of protected policies so that the type of policy covered could be altered by Order from the present restricted policies to all or any type of policy. Paragraph (b) covers the type of policyholders who are covered. I presume therefore that under that clause the Secretary of State could bring within the scope of the Bill corporate policyholders. Paragraph (c) refers to the level or amount of benefits. I presume therefore that under this clause the 90 per cent. set by the Bill could be varied by the Secretary of State.
Once again we are objecting to the Secretary of State having these powers to exercise by Statutory Instrument. I 1263 can only repeat what has ben said time and again in the course of today's debate: that we do not consider the Secretary of State should be given these powers in effect to amend the Bill by Statutory Instrument. We have already rehearsed our objections even to the Affirmative Resolution type of Order because it cannot be amended; and we again consider that Amendments to a Bill of this size and scope should be carried out by an amending Bill and not by an Order which is subject to the Affirmative Resolution of both Houses.
I hope we shall find that the Government have some sympathy with us in seeking to restrict the Bill to what it is primarily intended to do, and will not allow these large loopholes to occur in it or allow the Secretary of State to alter the whole scope of the Bill without bringing in amending legislation. I beg to move.

Lord HAWKE
This is the most astonishing clause that I can remember ever having read in 35 years in this House. I cannot think how it managed to creep into a Bill before Parliament. Either it has come in as a bone which it is proposed to throw to the Opposition to chew over so thoroughly that they will miss all the other points in the Bill, Or it is a try-on which could have the most disastrous consequences as a precedent if applied to other legislation. In either case it is something we ought to turn down here and now this evening.

§ Lord BALFOUR of INCHRYE
I should like to support the noble Lords. Lord Aberdare and Lord Hawke. The noble Lord, Lord Aberdare, gave us a general condemnation. It seems to me, looking at our proceedings this afternoon, that we shall have wasted a lot of time if we pass this clause; because it gives power to the Secretary of State to undo all that we have done this afternoon. Under Clause 14(1) the Secretary of State may act in any way in extending or restricting any of the duties imposed on the Board under sections 6 to 11 above ". We have passed Clause 5(2) and (3) which exclude from the provisions of Clauses 6 to 11—and this is a point that 1264 I made before and the Minister said that he would answer me later—companies at risk or on a receiving order. Under Clause 14(1) the Secretary of State has power to include Clauses 6 to 11, thus bringing in Nation Life or any other company and nullifying what we did earlier today.

§ The Earl of ONSLOW
Having seen words written into an Act of Parliament which include provision, by way of amendment of this Bill, for the idea that the Secretary of State could completely rewrite the Act. I should like to support the argument put by the noble Lords, Lord Hawke, Lord Balfour of Inchrye and Lord Aberdare. Having said that, I should like to make one or two comments on the possible amendment that could or should occur. In this Bill we are protecting only the private policyholders. Perhaps there ought to be provision in it for protecting our overseas policyholders. They are the important ones financially. This is admittedly a broker's argument and not an insurance company's argument.
The maritime, aviation, transportation and reinsuring business produces vast sums of money; and if those clients think they are being treated as second-rate clients, I think there could be unfortunate financial repercussions. After all, the Stock Exchange protects all its clients, whether they be foreign, English, company or private. The Committee of Lloyd's protects clients of its syndicates, whether private, foreign, corporate, English, reinsurers or what have you.
Furthermore, I should like to press Her Majesty's Government to produce by next Thursday the answer as to how much money the 1 per cent. premiums will raise, and also what amending legislation would be required if and when the EEC Freedom of Establishment directive materialises on February 6th next year.

Lord PEDDLE
I would support the noble Lord, Lord Aberdare, in seeking to leave out this most undesirable clause. I do not wish to repeat any of the arguments already advanced, but I would emphasise that it is an essential feature of the guarantee scheme that it covers only individuals and not corporate bodies, and provides only a 90 per cent. guarantee except on compulsory insurances, where a 100 per cent. guarantee is provided to 1265 protect third parties and not the policyholders. To extend the guarantee schemes to cover all classes of policy and all types of policyholders, and to guarantee all benefits 100 per cent., would not only be completely unjustifiable but would also multiply by many times the cost of the guarantee. I think it should be borne in mind that the guarantee scheme is in itself fundamentally wrong in principle in that it places the cost of the guarantee on wholly innocent policyholders in other insurance companies. For that reason, I would support Lord Aberdare's Amendment.

§ 6.39 p.m.

§ Lord ALDINGTON
May I support my noble friend, too? I think this clause goes every bit as far as my noble friend Lord Hawke indicated. It is the most surprising clause to find at Clause 14 of any Bill. It says that if we have made any mistakes by chance in the preceding clauses, or six of them, the Secretary of State can alter all that. Not only if he has made any mistake, but if he changes his mind from its present thinking, he can make an Order and alter all that. That seems so inconsistent with the line that the noble Lord, Lord Beswick, so wisely took in response to the Amendment relating to Lloyd's, that I am looking forward to the moment when he is released from his manifest unhappiness and is able to say that he wholly and completely agrees with my noble friend Lord Aberdare.
There are siren voices around indicating that some provisions, like those that appear in Clause 14, might be sensible. I was horrified to hear such a siren voice come from my noble friend Lord Onslow. One has seen this argument in the newspapers from members of the broking fraternity—and I have referred to it already—that once you have a Bill providing a measure of protection, the business of London goes "phut" if you do not have 100 per cent. protection for every form of insurance and every class of policyholder, but particularly for overseas policyholders. That is the argument the noble Earl put forward in the name of the brokers. What is a broker for? It is to exercise discrimination for the policyholder in choosing the right insurance company, or, if you like, the right underwriting syndicate in Lloyd's to carry the policy.
1266 What a surprising argument to be put forward by that fraternity, to whom incidentally this country owes an enormous amount for their efficiency in marketing —which is the modern word—the insurance capabilities of the City of London. The argument they put forward is flying in the teeth of the history of their own reputation that they have built up over the years, and would do them enormous harm, as it would do the City of London, the insurance companies and Lloyd's enormous damage if we were to listen to it. I am glad to know that in their heart of hearts the Government do not like it now. But what they are frightened about—and I suppose that is why Clause 14 is there—is that in later days some Secretary of State may wish to follow the siren noise of my noble friend Lord Onslow. I hope that will not happen.
There is one other argument used in support of this argument: "Why not give the Secretary of State powers of this kind because really it is what happens in the Stock Exchange or Lloyd's, but it does not happen anywhere else? "As I have tried to indicate, that view is founded upon a fallacy. Inside each of the big insurance company groups of this country there is complete protection within that group's resources. As I indicated to your Lordships this afternoon, there are several companies, not the one of which I have the honour to be chairman but others, whose resources are every bit as large as Lloyd's, and therefore who offer every bit as much protection as the excellent protection which Lloyd's are able to offer for their underwriters. Do not let us be misled by that argument either. The fact is that to a corporate policyholder, to an overseas policyholder, to someone who wishes to take out a policy in marine, aviation and transport business, whether he is a person or is corporate, there is the very efficient brokerage fraternity to whom to go. We look to the brokers to exercise discrimination and not to go running to the statutory nanny of a Bill like this to do their work for them.

§ Lord HOUGHTON of SOWERBY
As I said on Second Reading, I have no interest to declare in any matters under this Bill. I think, however, that this clause is objectionable, first, in principle. 1267 from the point of view of legislation and the powers of the Secretary of State, and, secondly, from the point of view of the obligations which will be accepted under this Bill by the policyholders of all companies and institutions brought within it. We have to realise that there is no public money going into this fund; it is money levied on policyholders that will go into it. We must be careful not to extend their liabilities far beyond the provisions of the Bill, which would be possible, as I see it, under Clause 14.
To extend the scope of the scheme in many particulars by Order, which I presume to mean a Statutory Instrument subject to the Negative Resolution procedure and not to the Affirmative Resolution procedure, is a more objectionable method than, for example, to do it under a Resolution of both Houses. It is surprising to me that as the Bill stands, we require both Houses affirmatively to approve guidance under Clause 2, but when it comes to a wide-ranging extension of the scope, the benefits and other important features of the scheme, we do it by a secondary instrument of delegated legislation. That is open to more objection still.
When one examines this clause in detail, one finds that the only thing excluded from the scope of an Order are matters referred to in Clause 6(4) and Clause 7. They do not limit the extensions which would be possible under subsection (2)(a), (b) and (c). The Government know that this scheme is not popular—to put it mildly—in the insurance industry. If they are going to get acceptance of it, they have to make up their minds how they are going to operate it. The Government are proposing to retain Clauses 2 and 14 at the same time as strengthening the composition of the Board, for them to have greater standing and be endowed with more confidence in the industry, but they ought to make up their minds which it is they want. Do they want the Secretary of State's "poodles" linked with guidance and extension of the scheme, and to hold their hand throughout, even pushing them around; or are they prepared to let a Board of standing, experience and responsibility, which have the confidence of the industry and of policyholders, do what the Bill permits them to do and get on with it as 1268 their wisdom and experience dictates? There is an inconsistency between having a strong Board—which we all desire—and, on the other hand, having the facilities which this Bill provides. Also, we have to be careful to get our constitutional direction straight. There is wide scope for delegated legislation which I regard more as administration than as principle. But, I submit with great respect to the Government, Clause 14 goes beyond what is reasonable in the powers conferred upon the Secretary of State, and it should be deleted from the Bill.

§ Lord CACCIA
I should like to add a few words to support what has been said about this clause. I think we should return continually, clause by clause, to ask ourselves this simple question: what is the object of the exercise? The object, as I understand it, is to protect the individual policyholder in this country. In the end it is his money, as has been said, which is going to be put up in order to achieve that object. Therefore, for all the reasons given, I would greatly deprecate any attention to siren voices. When it comes down to the clause, there are strong objections to it as it stands, both on the grounds of constitutional procedure and also on the grounds that we should not pass legislation allowing the Secretary of State to get on his horse and ride off in all directions, no matter what the previous clauses of the Bill may have said. Having got that far, I hope I shall not be "flogging a dead horse" when I say that I very much look forward to what the noble Lord, Lord Beswick, will say.

§ Baroness FISHER of REDNAL
; I shall not keep your Lordships very long but, following what the previous speaker has said, if we hark back to the principles of the Bill and keep them in mind instead of sidetracking into all kinds of insurance legislation, it will be more valuable. We know that insurance companies have gone under and have collapsed for different reasons. One hopes that a guarantee scheme will not encourage any more difficulties. If there is to be a 100 per cent. guarantee, this could encourage irresponsible management. It could encourage management to go in for highly speculative investment policies, and thus the prudent policyholders could suffer. What we must do is make sure that the guarantee,scheme 1269 really covers what we might describe as the responsible insurance company or insurance society which might for a variety of reasons fall into difficult times. We must not encourage those firms which we have seen running highly speculative businesses.

§ Lord AUCKLAND
What puzzles me about the Bill is that in Amendment No. 82 to Schedule 1 the Government have put down what seems to be a perfectly reasonable Amendment which defines the constitution of the Board, whereas Clause 14 seems to be giving directions, albeit discretionary, to very experienced people in the insurance industry. Bearing in mind what has gone before, it seems to me totally illogical that people appointed by the Secretary of State in the insurance industry, with all their experience of various aspects, should be subjected to what could be, on the face of it, such completely inflexible regulations.

§ Lord BESWICK
I have the sensation of knives in the back and arrows from the front! However, I will endeavour to answer the points which have been raised. First, may I assure the noble Lord, Lord Caccia, that it is not the intention of the clause to send the Secretary of State "flogging a dead horse" in all directions. The noble Lord, Lord Auckland, talked about Clause 14 giving directions, but it does not give any directions. It would enable the Secretary of State, in appropriate cases, to give directions. Let us not exaggerate this. The noble Lord, Lord Balfour, asked me again about the extreme case of Clause 14 provision enabling this errant Secretary of State to bring in companies like Nation Life. Really, he also is guilty of exaggeration, because if he looks again at the clause he will see that it relates to powers in Clauses 6 to 11, and not in Clause 5. Also, he would have to vary the date if he brought in Nation Life. So, again, let us not refer to problems which are not really before us.
The noble Lord, Lord Aldington, has been very vigorous in one or two of his observations. He posed the question—I have no doubt it was a rhetorical one" What are brokers for?". On occasion, one may well ask. I think there is scope for looking again at protection as regards that quarter. The noble Earl, Lord Onslow, seemed to be particularly 1270 troubled about the EEC. I speak subject to correction, but I am sure that any amending legislation would be quite irrelevant to the provisions of this Bill. I was also asked by the noble Earl what amount the levy was expected to realise. I am told that £15 million is expected from the general business and £9 million from the long-term business. Those are the maximum figures, according to current information.
I have dealt with the specific questions which I was asked, and I turn now to state, dead pan, what the justification of this clause is held to be. When I look at the rubric, Power of the Secretary of State to vary the duties of the Board ", I am bound to confess it is a little crude. But I think the crudity is not in the intentions of the Bill or of the Secretary of State of Her Majesty's Government. The thinking here is that in dealing with complex legislation in a new field it ought to be possible to make adjustments in the light of experience, subject always to the supervision of Parliament. In subsection (2) there are set out three main areas in which it could prove necessary to vary, extend or restrict the Board's duties under Clauses 6 to 11—not under Clause 5, as I have already said.
Paragraph (a) refers to extension or restriction of the classes or descriptions of protected policies to which any of the provisions of Clauses 6 to 11 apply. This would, for example, enable the addition to Clause 6(1) of protected policies satisfying the requirements of new enactments requiring compulsory insurance and therefore meriting protection by the Board at 100 per cent. instead of 90 per cent. For example, it may well be decided to regard insured occupational pension schemes that qualify for contracting out under the Government's proposed social security pensions legislation as a kind of compulsory insurance.
Paragraph (b) refers to extension or restriction of the classes or descriptions of protected policyholders entitled to the Board's protection under their duties in Clauses 6 to 11. There might be need here, for example, to adjust the definition of "private policyholder" in Clause 6(7) for the purposes of the Board's duties under Clauses 6(6) or 8(2), if this was found to be working unfairly. Or it might one day be decided—though 1271 there is no present intention of this—to extend the scheme to cover some or all corporate as well as private policyholders.
Paragraph (c) refers to variation of the amount of the benefits to be provided or secured for protected policyholders under Clauses 6 to 11. It might later be felt desirable to extend the degree of protection afforded to some or all policyholders under these clauses, in respect of all but compulsory insurance policies, to more than 90 per cent.; or, in the event, perhaps, of a series of failures causing a serious run on the Board's resources, to reduce it to a lower figure. Those are the sorts of considerations that were in the mind of Her Majesty's Government when they put this provision into Clause 14. I can well see that the powers, stated as they are, could give rise to anxiety. The noble Lord, Lord Aldington, spoke about "siren voices ", which suggested that something might be put in. I am sorry he raised this point. I should have thought that it was not siren voices but wise counsel which might suggest that some provision should be made here. I had been hoping that I should hear from among noble Lords who have taken part in the debate some indication as to the more restricted or qualified powers which might be vested in the Secretary of State. Quite obviously, here in the changing circumstances it might be convenient to have this power.
If noble Lords who are particularly interested liked to consider a form of words which they could put to me giving qualified power or restricted power, I should be happy to consider it. I can see —and I did not need the instruction which has been given to me in order to be able to see this—that Clause 14 appears to be very wide. If I might invite noble Lords, before we come back to the matter on Report stage, to consider whether it might be advisable to have some more limited power here, I should be very willing to discuss or listen to what is said to me.

§ Lord BALFOUR of INCHRYE
The Minister has given us an interesting recitation of paragraphs (a), (b) and (c). But are they not widened by the words: Without prejudice to the generality of subsection (1) above …"? 1272 If we look at subsection (1) above we see that that is a wide power, which we take exception to the Secretary of State's possessing. So it seems to me that the present recitation concerning paragraphs (a), (b) and (c) gets us nowhere.

§ Lord BESWICK
That is precisely the kind of constructive criticism I would hope could be expressed and which we could listen to.

§ 7.2 p.m.

§ Lord ABERDARE
The noble Lord, Lord Beswick, will by now have realised that there are not many friends of this clause in the Committee. I do not think we shall be content to leave this clause in any way as it is. Its powers are indeed too sweeping. He mentioned particular cases where a little flexibility might be necessary under paragraphs (a), (b) and (c) of subsection (2), but what he said did not reassure me at all. First of all, under paragraph (a) there is the need to include other policyholders who were statutorily required to insure. That we have already provided for in our Amendment No. 20 to Clause 6. There would always be power to bring in new categories even if we did not have this Clause 14. The noble Lord gave examples concerning paragraphs (b) and (c). Paragraph (b) dealing with extension of the scheme to cover corporate policyholders is just one of the things that none of us wants, and we feel that the Bill should not cover that; if it should ever be proposed, it should come before us in the form of legislation. Equally, to my mind the same would apply to paragraph (c), varying the amount from 90 per cent. to something larger.
However, I must say that I think that as this Bill is beginning its progress in this House, and we are at only its first detailed consideration, we should be quite wrong to seek to throw it out immediately, although we have strong reservations about it and will undoubtedly wish to return to it at the Report stage. Whether it is possible for us to think up something which would retain some flexibility without the sweeping power that the present clause provides, I do not know. Possibly at the moment the matter is the wrong way round. If flexibility is wanted, it is wanted to help the Board who are trying to work the scheme. If, to replace this one, there to be a clause 1273 which began: "On the recommendation of the Board the Secretary of State might produce some regulations which would assist the working of the scheme "because the Board had found difficulty in some particular area—then we might be better disposed towards the powers than we are at the moment. Certainly, I would not press an Amendment at the moment, but give notice that we do not like the clause at all and will try to see whether we can meet the noble Lord by trying to produce an alternative clause which retains flexibility but is more acceptable. At the same time, I hope we may be able to discuss the clause when we have the other discussions we are going to hold before we come to the Report stage.

§ The Earl of LIMERICK
Before we leave this clause, may I attempt, in response to the appeal of the noble Lord, Lord Beswick, to make a constructive suggestion, without drawing down upon me as a siren voice the wrath of my noble friend Lord Aldington. I believe that my noble friend Lord Balfour of Inchrye put his finger on the point which is worrying most of us. I refrained from intervening before listening to the Minister's reply. I refer to the sweeping generality of subsection (1). Some interesting examples were given which would obviously repay study, as to what is in mind regarding subsection (2). I could not myself see on the face of it why it was necessary to take powers under this Bill to deal with problems that would arise under new legislation. In the normal course of events one would assume that that would be dealt with in the legislation that followed, which could be used to bring about any necessary Amendments. Under paragraphs (b) and (c) there could well have been examples.
May I make a suggestion that the problem could be approached completely from the other side—combing through these clauses to see which are the subsections which may require amendment. If these were listed and examined, it seems to me it is probable that we should arrive at a position where the desirability of having some flexibility in these limited areas was acceptable to the Committee.

§ Lord BESWICK
That is a proposal. When the noble Earl suggests that we do that, I am reminded of a provision in 1274 King's Regulations: if a particular misdemeanour was not covered one could always be caught by "conduct unbecoming an officer and a gentleman ". I suppose that this is the equivalent of Clause 14. I will certainly consider what the noble Earl says.

§ Lord ALDINGTON
In all seriousness and with respect to my noble friend Lord Limerick and to the noble Lord, Lord Beswick, is not that exactly the point we want to avoid? We are not in a situation requiring Army law or martial law. We are not in a situation where we come up before company office and rely upon the good judgment of a captain or major sitting with his sergeant-major. That is not the point; nor is the court-martial. The point is that we want to establish a clear law to protect individual policyholders who suffer because they have had what they would call bad luck or, to put it another way, they have made a mistake in choice. They are to be protected at the expense of a lot of other people who have made a wise choice. That is what we are doing.
This seems to me pre-eminently a case where the law must be certain and must be laid down by Parliament and, having been laid down, not altered by a Minister, however wise he may be—that is not the way we run the rule of law in this country. That is what I am standing up for. I believe also that it is most important to the position of the insurance industry (Lloyd's included) overseas that it should not be felt that the British Houses of Parliament and the British Government think it may be necessary to extend the protection over a wide area. To let the idea go out from this House on the sort of basis that has just been referred to might do tremendous harm.

§ Lord BESWICK
I hesitate to join issue with a brigadier, but it was possible to apply King's Regulations to misdemeanours that did not come before a court-martial. I am not here speaking about martial law.

§ Lord ALDINGTON
I said, Army law.

§ Clause 14 agreed to.

§ Lord BESWICK
I wonder whether I may intervene here. As the noble Lord, Lord Aberdare, said, we have made quite 1275 good progress on this Bill, I should think that although the first Amendment to come is not a significant one, nevertheless Clauses 15 and 16 which follow will be the subject of considerable discussion. It might be better to start afresh on them on Thursday morning. I would suggest, if it is with the general agreement of the Committee, that we might say we have done very well today and leave it at that. I beg to move that the House do now resume.

§ Moved accordingly, and, on Question, Motion agreed to.

§ House resumed.