INSURANCE (TRANSFER OF GENERAL BUSINESS) REGULATIONS 1980

HL Deb 25 June 1980 vol 410 cc1664-73

5.59 p.m.

Lord LYELL

My Lords, I beg to move that the draft Insurance (Transfer of General Business) Regulations 1980, laid before the House on 2nd June 1980, be approved. These regulations implement a requirement of the European Communities non-life insurance establishment directive, which was adopted in 1973. Before I describe the regulations in detail, your Lordships may find it helpful if I were to recall the main elements of the non-life directive, and the steps already taken to implement it. The directive deals with the authorisation of companies to carry on insurance business. It also sets out the different classes of insurance business and prescribes the solvency margins companies must possess—that is, the excess of assets over liabilities. That same broad framework is found in the Insurance Companies Act 1974, and it has been possible to implement most of the directive by making regulations under the European Communities Act 1972 which have modified the authorisation; classes of business and solvency provisions in the Insurance Companies Act 1974.

Another provision of the directive requires an authorisation to carry on insurance business to be valid throughout the entire national territory. It has been implemented already by the Insurance Companies Act 1980 which extended the 1974 Act, modified by the regulations I have mentioned, to Northern Ireland and repealed the virtually identical Northern Ireland legislation. But we are still left with the important clement of the directive to be implemented. This is the requirement that each member state should make it possible for an undertaking to assign all or part of its portfolio of policies, subject to the approval of the competent supervisory authority.

The purpose of the draft regulations which your Lordships are considering today is to implement that requirement. Unlike the earlier implementing measures I have described, these regulations do not take the 1974 Act as their starting point. They are, as we might suggest, free-standing since they cover new ground for United Kingdom statute law. At present, insurance policies, like other contracts, can only be transferred from one party to another either with the consent of all the parties concerned, or, in the case of a compromise or arrangement, with the sanction of the court. These draft regulations enable the Secretary of State to approve the transfer of general business insurance contracts from one company to another. Once the transfer has been approved, the transferee company assumes all the rights and obligations of the transferor company under those contracts.

With that brief summary in mind, your Lordships may find it helpful if I run briefly through the regulations. Regulation 1 is mainly conventional and is just descriptive. Regulation 2 defines various terms. I should like to draw your Lordships' attention in particular to the definition of "affected policyholder". The term naturally covers the holders of policies included in the transfer. In addition, it covers other policyholders either of the transferor or the transferee company whose interest may be materially affected by the transfer. Regulation 3 deals with applications for approval of transfers. The transferor company applies to the Secretary of State. Both companies will be obliged to supply all the necessary information, which will range from details of their own status and solvency to information about the policies to be transferred.

Regulation 4 deals with the extensive publicity arrangements that are central to the procedures. The object is to give those affected by a proposed transfer the opportunity to make representations to the Secretary of State. I have already drawn your Lordships' attention to the broad meaning given to the term "affected policyholder" in the regulations. Regulation 4 also recognises that those with an interest in a policy should have the opportunity to comment. We have in mind, for example, the case of a building society which has a financial interest endorsed on a householder's fire policy.

I should like to say something about the way in which the Secretary of State's discretion under Regulation 4(1)(b) will be exercised. Before making a direction that the transferor need not notify every affected policyholder, we shall examine carefully the claims experience of the company. We shall need to be satisfied that for any policy for which notification is not proposed, the probability of any further claim is small—so small as to make notification inappropriate.

I would emphasise very strongly that we are dealing here with general business policies which are renewable annually and not with long term, that is, as we describe them, life assurance policies. We expect that in many cases a company seeking to transfer general business policies under these arrangements will no longer be carrying on business of the type in question when it makes the application. In most cases the policies which are to be transferred will be old, and in some cases they will be very old indeed. We believe that it would be unduly burdensome to require notification to holders of all policies which had expired so long ago that it was improbable that claims would be made and settled, bearing in mind the stipulation in most policies that claims must be made within a reasonable time. But we find that experience varies from company to company and between different classes of business. Claims under employers' liability policies may emerge years after the policy has nominally expired. We shall have to examine each application in the light of experience and form a judgment on which policyholders a company need not notify. I should make it clear, however, that it seems probable that in most cases some of the policies to be transferred will be so old as to make some direction under Regulation 4(1)(b) appropriate.

For one type of business, which we call freely assignable marine insurance, the holder of the policy at any one time is often unknown to the insurance company. In these cases, a direction will generally be made.

Regulation 5 deals with the decision of the Secretary of State. The requirement in Regulation 5(1) to consult with the supervisory authorities of other member states is found in the directive. There are a number of pre-conditions which must be satisfied before an application can be entertained, and these are set out in Regulation 5(3). If those conditions are fulfilled then the Secretary of State will weigh all the relevant factors, including representations made by interested parties, and take his decision. Regulation 6 deals with the publication of the Secretary of State's decision.

Regulation 7 deals with the effect of approved transfers. The transferee, that is, the recipient of the policy, will assume all the transferor's rights and obligations under the contracts. Regulation 7 also ensures that, generally speaking, a policyholder who has not been made aware of a transfer is not bound by it until he has been duly notified.

Regulation 8 deals with transfers into and out of Lloyd's. The arrangements have to be tailored to Lloyd's to take account of two special factors. First, Lloyd's operates in syndicates, so that the transferor or the transferee in the case of a transfer involving Lloyd's will be several "names". It is convenient to have one person authorised to act on behalf of all the members of a syndicate. The committee of Lloyd's will therefore pass a resolution authorising one person to act on behalf of the members of Lloyd's concerned. The second modification to the arrangements reflects the fact that the directive solvency margin applies to the members of Lloyd's together and not to individual syndicates or "names". Regulation 9 is concerned mainly with the service of documents and is self-explanatory.

After that somewhat detailed explanation, I should like to outline how we expect the regulations will be used if they are approved. They will certainly not be used as an easy way out for companies which want to off-load business with which they have become disillusioned. The procedures laid down are such that only a company that genuinely believed that a transfer would be in its own interest and could be shown to be in the interests of its policyholders would embark on the exercise. We know of some two dozen or so companies which are hoping that the regulations will be made. For the most part, as I have already mentioned, they are companies that have ceased taking on new business. They have generally re-insured the risks still on their books, often with other companies within the same group. Although they have become no more than shell companies, they cannot at present be dissolved until all their liabilities have been discharged. These regulations would enable them to transfer their liabilities to an active company as a prelude to their own dissolution.

Once those companies of which we are already aware have taken advantage of the procedures, we would not expect many further applications. At the same time, it is right to introduce these procedures because, until we do, we are in breach of a Community obligation. We believe that they will provide useful, even if rarely used, facilities. For that reason, I commend the regulations to your Lordships and I beg to move.

Moved, That the draft Regulations laid before the House on 2nd June be approved.—(Lord Lyell.)

6.10 p.m.

Lord BRUCE of DONINGTON

My Lords, we on this side of the House are most grateful to the noble Lord for having explained so lucidly the order before your Lordships. It is, as the noble Lord indicated, an order with a very limited function affecting but a small area of the insurance market. It would seem that the insurance community generally would be glad if it were approved. It tidies up a situation and it will facilitate transfers in accordance with Article 21 to which the noble Lord referred. It reflects part of the legislation which has been running around the European Community for some time. It affords an opportunity for the House to consider the general position that arises at this time in connection with insurance business other than life assurance business. This particular order relates to the EEC Directive No. 73/239. There are still substantial parts of that that have to receive your Lordships' attention. As the noble Lord, Lord Lyell, says, the facility offered by the original directive is purely one of facilitating the establishment within member states of insurance businesses on the basis that of course they will be in full conformity with the laws obtaining within those member states. This is a step forward.

There is another associated Directive, No. R95 of 1976, which was presented to your Lordships' House on 1st December 1976, which is a draft directive on the co-ordination of laws relating to direct insurance other than life assurance, and laying down provisions to facilitate the effective exercise of freedom to provide services. This particular directive is indeed complementary to the directive under which the present order is laid. I hope that your Lordships will agree that it is possible to use this occasion to review progress as to what has happened to this most important directive, which was designed to facilitate the provision of services throughout Europe across the frontiers, because, of course, it is this particular business that is of the greatest possible interest to the insurance industry of this country.

Your Lordships hardly need to be reminded that the invisible exports of the United Kingdom play a very significant part in the country's balance of payments, and that the insurance community—notably that in the City of London—has made very considerable contributions indeed in this particular field. It was to be hoped, following entry into the European Community, that the provisions of the Treaty relating to this would be speedily brought into being and would have some beneficial effect upon the United Kingdom.

I note in particular Article 59 of the Treaty which says: Within the framework of the provisions set out below, restrictions on freedom to provide services within the Community shall be progressively abolished during the transitional period in respect of the nationals of member states who are established in a state of the Community other than that of the person for whom the services are intended". Under Article 60 it lists the various services including those of the professions which in turn include those of the insurance community mainly in the City of London.

What has happened to this? This Treaty was signed, I believe, somewhere round about 1957, so the transitional period has been going on for a fairly considerable period of time. Nevertheless, draft Directive No. R95 of 1976 was eventually produced and was considered by a Select Committee of your Lordships' House which produced a report on this particular subject on 1st December 1976. In the report of your Lordships' Select Committee it was stated in paragraph 1 that the proposal was not expected to be presented to the Council before the end of 1977. It is now two and a half years after the end of 1977 and one wants to know what has happened to it; and, more particularly, in connection with yet another directive that is supposed to follow the second directive to which I have referred. It is said that this particular report, No. R95 of 1976, was still under consideration on 22nd November 1979, by the Council.

This point is raised with no party political intent at all. The previous Government may have been responsible in part for the delays that have occurred. There may be a number of reasons for this. But this much I do know, as a member of the Economic and Monetary Affairs Committee of the European Parliament, representing your Lordships' House: that this particular directive was obstructed at Committee level and every conceivable level for a period of about two years. This obstruction may have gone on since.

I raise the point simply to express some dismay that whereas the provisions of the Common Agricultural Policy seem to be adopted and put forward by the eight other member states with some considerable alacrity, some might even say indecent haste, when it comes to items which have a direct fundamental benefit to the United Kingdom—freedom to pursue quite freely across frontiers the business of non-life insurance—one finds as a matter of practice that every conceivable obstruction is raised at Committee level, often at COREPER level, certainly Council level and not infrequently at Commission level.

This, as I have ventured to emphasise, is a matter of some concern to the United Kingdom, and the United Kingdom has every right in my view, and, I trust, in your Lordships' view, to say: "This is all very well. We are admitting your goods freely here. Our trade deficit in terms of visible goods, including raw materials, is some £4,000 million a year. Why can you not go on so that we may quite legitimately proceed in accordance with the Articles of the Treaty to extend our activities in your territory in a field in which we are expert and in a field which will bring some benefit to us?".

I say that not in any kind of partisan spirit; indeed, it would be most difficult for me to do so in the light of the whole manner in which this regulation was introduced by the noble Lord, Lord Lyell. We are both members of the same profession, and that very often helps. But I venture to draw the attention of the House to this factor and to ask the noble Lord—and I have given him advance notice of the questions I was going to ask—just what is the status of this regulation. Just where is it being held up? Is it in the Legal Affairs Committee of the European Parliament, the Economic and Monetary Affairs Committee of the European Parliament, the plenary session of the Parliament itself, the COREPER, the Economic and Social Committee, or the Council? Where is it now; when are we going to have it; and when can we pass the appropriate legislation in this House to enable this country and its insurance industry to draw some benefit from it instead of—as in a good number of other spheres in connection with the Community, as emphasised by the right honourable Lady the Prime Minister herself—eternally paying out?

6.21 p.m.

Lord LYELL

My Lords, we are very grateful to the noble Lord, Lord Bruce, for his welcome for the regulations and also for his forthright support of all that the insurance industry does for the United Kingdom, especially his last comment about the balance of payments and how we would wish to improve our balance of payments in general with the Community. The noble Lord took a fairly firm line with this directive on insurance services, which we are grateful he gave some advance notice of, but in general I have nothing very detailed to add to what the noble Lord—and clearly he is an expert—has dealt with. I refer to the specialised professional matters as well as the other matters he was speaking about in regard to our mutual profession.

Indeed, I am sure many of us would wish that the professional attitudes that the noble Lord and myself share could be adopted so far as this particular directive is concerned. But, as we are aware, and as the noble Lord pointed out, the directive has been under discussion since 1977. We understand that the blockage is still occurring in what the noble Lord called the COREPER level and, so far as is known, at the moment the COREPER, at the instigation of the Commission, has asked for a progress report from the working group before the summer recess—and I understand that in European terms that is a little earlier than the Summer Recess in your Lordships' House.

The Government welcome this move and we will do everything in our power to ensure that COREPER, when they consider the report—and that will be, I think, within the next month—will take steps to speed up the matter. We share the noble Lord's concern. The Government do indeed share the noble Lord's anxiety that the negotiations should come to a speedy conclusion so that the insurance industry in the United Kingdom can take the fullest advantage of all the effective freedoms mentioned by the noble Lord to provide services across all the frontiers of the Community to which the Treaty of Rome entitles us.

We hope the Community will be taking stock soon—before the Summer Recess—of progress made at the experts' level, and indeed we cannot, we believe, do much more than add our support to all that is being done by our representatives at COREPER level My Lords, that is as far as I can go at the moment.

On Question, Motion agreed to.