HL Deb 28 January 1993 vol 541 cc1378-83

4 p.m.

Viscount St. Davids rose to move, That the draft regulations laid before the House on 30th November be approved [13th Report from the Joint Committee].

The noble Viscount said: My Lords, the regulations are intended to fulfil our obligations to implement the second Council directive on life assurance (Directive 90/619/EEC of 8th November 1990). The main purpose of the directive is to allow life assurance companies which have their head offices in one member state to conclude contracts with policy holders in another member state without having to set up a branch or agency in that state.

The directive is part of the European Community's single market programme and represents a stepping stone towards the completion of a single European market in insurance. The development of EC legislation on direct insurance began as long ago as 1973 when the first non-life insurance directive laid down the right of an insurer with its head office in one member state to establish a branch in another member state. This directive was followed in 1979 by a parallel first life assurance directive.

These directives were important in two key ways. First, they avoided the need for an insurer to establish a separate subsidiary if it wished to do business in another member state. Secondly, they took the first steps towards a common approach to financial supervision by laying down detailed rules relating to the calculation of an insurer's solvency margin. Nevertheless, the directive allowed all business carried on in a member state to be subject to supervision in the member state where the branch was situated.

The second directives, the non-life services directive adopted in 1988 and the life services directive adopted in 1990, allow insurers for the first time to sell insurance in another member state without having a local presence. This concept of selling insurance across member states' borders is known as the freedom to provide services. This freedom for non-life insurance was implemented in the UK in 1990. The regulations now before the House extend the freedom to life assurance, though not, for the time being at least, to long-term business falling within Class VII; that is, pension fund management.

This freedom is, however, of limited effect. Only insurers of large non-life risks, and life contracts which are taken out by the policy holder on his own initiative, enjoy full freedom to provide services under the second directives. The directives allow the member state where the services are provided to continue to authorise the provision of other life assurance into that state.

The UK currently allows insurance to be provided directly into the UK from an overseas establishment without the need for UK authorisation. Thus the Government did not take up the option to authorise services business in respect of non-life insurance provided into the United Kingdom and do not propose doing so either for life assurance. So we will continue to allow freedom to provide services into the UK. Certain other member states may do the same.

The second directives represent a limited mid-way stage between the first directives and the more important third directives adopted last year. Your Lordships will be aware of the significance of these third directives from the inquiry into the proposed single insurance market chaired by my noble friend Lord Aldington in the first half of 1991 when the European Commission's proposals were first published.

These third directives complete the single market for insurance by introducing the "single passport" concept for all direct insurance. This single passport will mean that an insurer will be able to offer insurance anywhere in the European Community on the basis of the single authorisation which it receives in the state where its head office is situated.

The third directives were adopted in a form which was very acceptable to the Government. They are due to be implemented by July 1994 and measures will be laid later this year to achieve that. The third directives are not due for debate today and I should therefore like to return to the second life directive.

This directive is essentially in two main parts. The first amends and extends the first life directive by introducing provisions in four areas: first, rules governing the law applicable to direct life assurance contracts; secondly, procedures for the transfer of life assurance contracts from one insurer to another; thirdly, an extension of the supervisory authority's powers to take action against an insurer which infringes the laws of another member state; and, fourthly, the establishment of reserve powers to enable member states to act together to obtain effective access to non-EC markets. The second part introduces the freedom for life insurers to provide services.

These provisions include, first, a requirement on the insurer to notify supervisory authorities of his intention to provide services in another member state. Notification must be made to the authorities in the member state where his head office is situated, those in the state where the services are to be provided and, where the insurance is to be provided from a branch established in a third member state, the authorities of that state also.

Then there is the option that I mentioned for member states to choose to make the provision of services in their territory conditional upon the grant of an official authorisation from their authorities except where the policy holder takes the initiative to conclude a contract on a cross-border services basis. It also requires the competent authorities in the member state where the services are provided to have adequate powers to take action against companies which fail to comply with the laws applicable to them in that state if the authorities of the member state where that establishment is situated fail to do so. It grants cooling-off rights for all individual life insurance policy holders contracting on a cross-border services basis. Lastly, it requires member states to exchange statistics on premium income receivable from services contracts.

I have already placed in the Library and the Printed Paper Office detailed notes on the regulations which we are now discussing, and I hope that your Lordships will find these helpful to your understanding of their effect. I shall indicate briefly how each regulation implements these principles.

The first group of regulations which I shall describe extends to long-term insurance business certain existing provisions of the Insurance Companies Act 1982 which were introduced by earlier regulations in respect of general insurance business. These are Regulations 2, 4 and 6.

Regulation 2 extends the Secretary of State's powers of intervention, powers to withdraw a company's authorisation and powers to petition for the winding-up of a company where that company has failed to comply with the laws of another member state if those laws implement the first or second life directives. This includes, for completeness of implementation, reserve powers for the Secretary of State to take action against the members of Lloyd's. This does not affect Lloyd's ability to regulate itself under the various Lloyd's Acts.

Regulation 4 extends provisions relating to the provision of life assurance into the UK from another member state and thus fulfils one of the key purposes of the directive. Regulation 6 provides interpretation for certain phrases used in the Insurance Companies Act 1982 as it is amended by these regulations.

I turn to the detailed arrangements established by Regulation 3. This regulation implements Article 6 of the directive which provides for consultation with the authorities in other member states before approval can be given to a transfer of long term insurance business from one authorised insurer to another. It also requires the authorities in the member state where the head office of the transferee company is situated to certify that the transferee will have the necessary margin of solvency after taking the transfer into account. Essentially, Regulation 3 provides that the authorities of any member state connected with a proposed transfer of life assurance contracts must be consulted and give their assent before a transfer can be approved.

The next group of regulations, Regulations 5 and 9 implement the provisions of the directive which determine the law applicable to direct life assurance contracts. Regulation 5 amends the Insurance Companies Act by introducing the rules governing the applicable law for life assurance contracts set out in Article 4 of the directive. Regulation 9, which amends the Contracts (Applicable Law) Act 1990, clarifies the relationship between Article 4 of the directive and the Rome convention on the law applicable to contractual obligations implemented by the 1990 Act.

Essentially, the effect of the two regulations taken together is that the 1990 Act will apply to insurance contracts except where there is a conflict with the law applicable to insurance contracts under the Insurance Companies Act in which case the latter rules take precedence.

Two further regulations affect provisions of the Financial Services Act. These are Regulations 7 and 8. Regulation 7 limits the notification requirements on EC insurers providing insurance into the UK if that insurance is investment business within the definition in the Financial Services Act.

The Financial Services Act requires such insurers to notify the Securities and Investments Board of their intention to provide such services into the UK. However, all EC insurers providing any kind of life assurance services into the UK are required by the Insurance Companies Act to notify the Secretary of State. This regulation allows such insurers to be deemed to have complied with the Financial Services Act by submitting a single notification to the Secretary of State, who will in turn forward such notifications to the SIB.

Regulation 8 completes the implementation of Article 9 of the directive and Article 4 of the Motor Services Directive (Directive 90/618/EEC), which establish reserve powers to enable member states to act together to obtain effective access to non-EC markets. These articles were for the most part implemented by the Insurance Companies (Amendment) Regulations 1992 (SI 1992/2890) made on 19th November last year.

This new regulation ensures that the Secretary of State's or the Treasury's powers to take action under Section 183 of the Financial Services Act against an insurer which is connected with a non-EC country cannot be exercised in situations where the Council or the Commission may issue a direction under these directives. The Government accept that in this area it is more effective for member states to act together. A similar provision in respect of banking was made last month in the Banking Co-ordination (Second Council Directive) Regulations 1992 (SI 1992/4848).

Finally, Regulations 10 and 11 introduce a statistical requirement on life insurers to provide details of premium income receivable from their services business, broken down into each class of business and each member state in which the services have been provided. Regulation 11 limits the provision of statistics to cover only that business provided from the time that the regulations come into force, that is, after 20th May this year, thus ensuring that the requirement is not retrospective.

The schedule to the regulations provides the form on which this information should be supplied. These regulations do not implement the cooling-off provisions of Article 15 to which I referred earlier. This article was amended by Article 30 of the third life directive, which was adopted on 10th November last year. The Government intend to lay regulations shortly which will implement the cancellation provisions of both directives. These regulations will come into force on the same day—20th May—as the regulations we are discussing now.

The Government attach a high priority to the completion of the single market in insurance. The second directive, and the regulations we are discussing today represent a small but useful transitional step. The key regulations will be those which the Government intend to bring before the House later this year, which will grant the "single passport" to EC insurers and make the single market a reality. I commend the regulations to the House.

Moved, That the draft regulations laid before the House on 30th November be approved [13th Report from the Joint Committee]. — (Viscount St. Davids.)

4.15 p.m.

Lord Peston

My Lords, it gives me great pleasure to thank the noble Viscount for an excellent account of an extremely difficult matter. When the regulations were debated in another place, Members chose to have a rather broader debate on insurance. I shall not delay the proceedings today by demanding such a debate at this time. However, I believe that noble Lords on all sides of the House would find it opportune to discuss insurance in the near future because it is a particularly interesting matter.

The regulations seem as good an example as any of the benefits of the single market. I am convinced that our industry will gain, as will our consumers of insurance. Certainly, from these Benches, we welcome the regulations as much as the Government do in putting them forward.

I accept that this is a transitional phase. We look forward to what will be the third directive when it comes before the House. There are two general comments that I wish to make. The first relates to the single market. To my mind this brings out how important it is for us to get back to a fixed currency and, in due course, a single currency regime. Clearly, with insurance operating in the single market there is an additional risk if currencies are also floating. I do not go back from my earlier position that fixed currencies and eventually a single currency are the right basis for the single market.

The second point is technical and is a matter which we should discuss in the future. How the insurance market works depends very much on the tax regimes of individual countries. We need to look at that in more detail.

I have some questions for the noble Viscount, although I assume that the answers are obvious. I take it that the industry strongly welcomes these directives and the single market. Certainly, it should do because it is a great opportunity for what is a particularly efficient part of our financial system.

Secondly, I believe that what is proposed is in the interests of consumers. I am interested to know whether the Government have consulted consumers directly or whether there have been any representations from consumer organisations. My judgment is that that is not particularly necessary because it is obvious that widening the market is to the benefit of consumers. However, I should be interested to hear whether the noble Viscount has anything to add on the subject. I repeat that I welcome the regulations.

Viscount St. Davids

My Lords, as I mentioned earlier, my noble friend Lord Aldington has inquired into these matters and I am sure that, with his well known diligence, he will have consulted all interested parties. What is proposed makes very little difference to the consumer at this stage. Cooling off rights will be extended to most life policies but those arrangements will he dealt with in separate regulations to be brought before the House shortly. That will be the only area in which there will be much influence on consumers.

On Question, Motion agreed to.