HL Deb 15 December 1993 vol 550 cc1353-4

2.45 p.m.

Lord Campbell of Croy asked Her Majesty's Government:

Whether they will review the legislation which appears to have made the British insurance industry responsible for paying claims in the United States against a collapsed British company.

Viscount Goschen

My Lords, a working group comprising representatives of the DTI and the Association of British Insurers is currently reviewing the scope of the Policyholders Protection Act 1975.

Lord Campbell of Croy

My Lords, I thank my noble friend for his reply. Is he aware that the BBC's "Money Programme" on 28th November gave the impression that huge liabilities had been incurred in the United States to be met by the compensation scheme in the British 1975 Act? That situation was not foreseen in 1975 nor intended.

Viscount Goschen

My Lords, the Government are aware of the liabilities which have arisen in the USA from the insolvency of the insurance subsidiaries of the London United Investment Group. The net cost is expected to be between £170 million and £250 million, taking into account the recoveries which will eventually accrue to the Policyholders Protection Board. However, it was always envisaged that non-UK residents taking out policies directly with insurers established within the UK would benefit from the protection of the Act.

Lord Peston

My Lords, we are indebted to the noble Lord, Lord Campbell of Croy, for raising this disturbing matter. Does the noble Viscount agree that the purpose of the 1975 legislation was to provide protection for the consumer? Will he confirm that that was its purpose and that what seems to have happened is a misuse of that legislation for other purposes? I welcome the Government looking again at the matter. Can the noble Viscount say whether we shall hear shortly that the Government will be taking some action?

Viscount Goschen

My Lords, I confirm that the aim of the legislation was to provide a safety net for policyholders in the event of an unforeseen insolvency. The Government recognise the anxiety expressed. That is why the group was set up to review the scope of the Act. The working group will report early in the New Year.

Lord Campbell of Croy

My Lords, does my noble friend's reply mean that the burden will be borne by the British public through higher premiums? Does he agree that in present circumstances protection in this field should not be extended beyond the European Union, whose members can be expected to give some reciprocity?

Viscount Goschen

My Lords, possible premium increases are a matter for the insurers. Nevertheless, free competition serves to ensure that any increases will be kept to a minimum. A limit on the UK nationals would be against our UK obligations. Any limitation to EC nationals would need to be reviewed in the light of our international obligations.