HL Deb 29 June 1990 vol 520 cc1877-9

3.40 p.m.

Viscount Ullswater rose to move, That the draft regulations laid before the House on 11th June be approved [21st Report from the Joint Committee].

The noble Viscount said: My Lords, these regulations are intended to fulfil the obligation on the Government to implement the Second EC Council Directive on Non-Life Insurance, often referred to as the non-life services directive. The adoption of this directive in 1988 represented a significant and welcome step forward in the completion of the single European market in the field of insurance and noble Lords may find it helpful if I set it in its context.

Freedom of establishment for insurance in the European Community was achieved in the 1970s. Freedom of services, however—freedom, that is, to write contracts across frontiers —has been long delayed and it is only since the judgments of the European Court of Justice in December 1986 that progress has been made. The present directive reflects those judgments in respect of non-life insurance and will create a genuinely liberal regime for the writing of so-called large risks —meaning for the most part risks where the policyholder is a company above a certain size. Member states may continue to impose greater restrictions on risks other than large risks, and most other than the United Kingdom probably will.

I do not propose to describe all the draft regulations in detail, though I shall of course be happy to explain any of them more fully if that would assist the House. I will, however, refer briefly to some of their more important aspects. First, the regulations amend the Insurance Companies Act 1982 and subsidiary regulations by establishing a regulatory framework within which EC companies may cover risks situated in the UK. Equally, UK companies (which includes branches of EC companies established in the UK) may cover risks situated in other member states. As I have already explained, the directive provides for two regimes—a liberal one for large risks, which is mandatory, and a much more restrictive one for so-called mass risks, which is optional.

The UK has always been an open market for non-life insurance and we do not propose to take up the option of the mass risks regime. EC companies wishing to do services business here will therefore be subject to the large risks regime irrespective of the nature of the contract. Such a company will be required to submit certain documents to the Secretary of State, including certificates issued by its own supervisory authorities regarding its solvency and the classes of business which it is authorised to carry on. It will be entitled to carry on business from the date on which those documents are received.

Certain new requirements are imposed on the company as regards the information about itself which it must provide to prospective and actual policyholders. I stress that although EC companies covering all types of risks will have access to the UK market under the large risks regime, one additional requirement in the case of personal and other mass risks policyholders is that before any contract is entered into they must be informed where the insurance company is established. That is a new safeguard that does not apply at the present time. The regulations also include provisions to reflect the rules on matching contained in Annex 1 to the directive.

The regulations also contain new rules governing law applicable to a non-life insurance contracts and they empower the Secretary of State to take action against a United Kingdom company which is in breach of the law of another member state.

The Government attach a high priority to the completion of the single market in insurance and we regard it as important that all member states should implement the present directive promptly and effectively so that the Community's insurance industries can take full advantage of the new opportunities that it offers. The present regulations are designed to fulfil our own obligations in that respect: I commend them to the House. I beg to move.

Moved, That the draft regulations laid before the House on 11th June be approved [21st Report from the Joint Committee]. —(Viscount Ullswater.)

Lord Graham of Edmonton

My Lords, we on these Benches have no objection to the regulations and see their good sense in fulfilling our obligations as members of the EC. They are much too full of technical detail for me to comment on them sensibly, but, having read them and listened to the Minister, I certainly understand that we seek to enhance the reputation of the British insurance industry, which is great, well-appreciated worldwide and very important to this country. I also detected strands in the Minister's speech which are designed to ensure that the security of the investor and the probity of the companies involved in the insurance market are given close attention.

I am sure that the Minister does not need me to tell him that from time to time sensitive matters come into the public domain and that it is clear that the best kept regulations in the world fail to stop fraud or recklessness with regard to insurance. There are two main areas of insurance with which we are concerned. I am always conscious of the individual —the person who insures genuinely rather than invests, not to make a profit, but simply to ensure that in his or her old age or at a given moment in time, he or she will have money available to help them. Under the Financial Services Act, the Government have, to their credit, created a network which by and large works well. However, as even the best regulated regime and fully staffed departments of state can get into trouble, anything that the regulations do to ensure that such problems are avoided is to be welcomed.

One of the tags that I learned when I studied commercial law concerned bona fides —being of the utmost good faith. That is one of the bedrocks of the commercial insurance world. Millions of people put their money and their future, with the utmost good faith, into the hands of insurance companies. We on this side of the House are sensitive about the Government's responsibilities to ensure that that faith is not misplaced. Having listened to the Minister, I certainly see no objection to the regulations.

Viscount Ullswater

My Lords, I should like to thank the noble Lord, Lord Graham of Edmonton, for the welcome that he has given to the regulations. Insurance regulations in the United Kingdom have a good record. Supervision has been effective. At the same time the industry has enjoyed the freedom to innovate and compete. That has given us a competitive industry.

On Question, Motion agreed to.