HL Deb 18 May 1993 vol 545 cc1734-6

7.50 p.m.

Viscount St. Davids rose to move, That the draft regulations laid before the House on 19th April be approved [26th Report from the Joint Committee].

The noble Viscount said: My Lords, when the House considered and approved regulations to implement the bulk of the Second Life Assurance Directive (90/619/EEC) on 28th January I said that the Government would be laying separate regulations to implement the directive's provisions on cancellation rights given to policyholders. These are the regulations before the House tonight. They amend the insurance companies legislation in respect of "non-investment" life assurance. Life assurance which is defined as investment business by the Financial Services Act is covered by the rules of the Securities and Investments Board. The SIB will be making separate amendments to its rules to implement these provisions and will issue a consultation document shortly.

Your Lordships will recall that the Second Life Directive gives EC insurers limited freedom to provide life assurance services in other member states without having to set up branches in those states. It is an interim measure on the road towards completion of the single EC market for life assurance, which is achieved by the Third Life Directive (92/96/EEC) due to be implemented by 1st July 1994.

The regulations under consideration today implement Article 15 of the Second Life Directive, as amended by Article 30 of the Third Life Directive. Article 15 of the second directive gives individual policyholders concluding a life assurance contract on a cross-border services basis a right to cancel the contract and lays down a period of between 14 and 30 days during which the policyholder may exercise this right. Article 30 of the Third Life Directive extends this right to all life assurance contracts sold within the Community by EC insurers but also allows member states to exempt certain contracts where, in the words of the directive, the status of the policyholder or the circumstances in which the contract is concluded are such that the policyholder does not need this special protection.

The implementing regulations are divided into two instruments. The first is the Insurance Companies (Cancellation) Regulations, which amend the Insurance Companies Act 1982 under powers contained in the European Communities Act 1972. These regulations require the approval of this House. The second is the Insurance Companies (Cancellation No. 2) Regulations. These amend the Insurance Companies Regulations 1981 under powers contained within the 1982 Act. They were made on 19th April and laid the following day under the negative resolution procedure. The regulations are closely related, which is why I suggest that it is convenient to consider them together.

I have placed in the Vote Office and the Printed Paper Office detailed notes on these regulations. They explain the purpose and effect of the regulations and how the current legislation would be amended. I shall give a brief outline of the cancellation regulations which are for this House to approve tonight. They make a number of amendments to the 1982 Act.

In the first place, it introduces a definition of an EC contract and a non-EC contract. As I explained to the House on 28th January, the new provisions in the Act will apply only to EC contracts. For non-EC contracts the existing arrangements will continue to apply. The other amendment then introduces the new provisions for EC contracts. It extends the existing cancellation provisions to cover EC insurers providing life assurance services into the UK from another member state, and also to cover industrial assurance business which the 1982 Act has exempted until now. It also extends the cooling-off period for EC contracts from 10 to 14 days, the period starting from the time when the policyholder is informed that the contract has been concluded. It allows the statutory notice, which informs the policyholder of his cancellation rights, to be given to him rather than always being sent. The amendment is made because industrial assurance business and contracts concluded through Lloyd's brokers will no longer be exempt from the right to cancel and it is normal for these contracts to be concluded with both parties being present at the time.

Finally, it disapplies these provisions from residents of other member states, since they should be covered by rules which the states in which they are resident should have in place in compliance with the directives' requirements.

I should now like to turn to the Cancellation No. 2 Regulations, which have been laid under the negative resolution procedure. These will apply to all contracts covered by the Insurance Companies Act. They amend the form of the statutory notice and the categories of contract which will be exempted from the right of cancellation.

Several categories of contract which are currently exempted will be removed. Those currently allowed in the Insurance Companies Regulations 1981 were drawn up before the enactment of the Financial Services Act 1986 and some are now redundant. Others can no longer be justified under the terms of the directives. Contracts which will now attract cancellation rights are single-premium contracts, contracts for permanent health insurance over five years and contracts taken out by a policyholder on the life of a third person.

A few contracts will still be exempt. These are contracts which are not taken out by individual persons; contracts of term assurance of six months' duration or less; contracts of reinsurance; and contracts which insure a policyholder's obligations to make payments under a. personal credit or consumer hire agreement under the Consumer Credit Act 1974 where the terms of the agreement have been entered into on the understanding that the life assurance contract will remain in force.

The current statutory notice also pre-dates the Financial Services Act. We have taken this opportunity to revise it to make it more directly relevant to non-investment insurance contracts and also to make the wording as consistent as possible with the notice which the SIB requires to be issued for contracts which fall within the scope of the FSA. This notice is set out at Schedule 1. We have also removed some of the more detailed printing requirements as part of the Government's deregulation of unnecessary legislation. These amendments should make the notice clearer for policyholders and easier for insurers to produce.

A small number of investment contracts provided on a services basis into the UK by EC insurers fall outside the FSA because of the way they are sold. A separate notice for these contracts is included at Schedule 2.

These regulations should all come into force this coming Thursday, 20th May, the same day as the other regulations implementing the Second Life Directive which the House approved in January. I beg to move.

Moved, That the draft regulations laid before the House on 19th April be approved [26th Report from the Joint Committee].—(Viscount St. Davids.)

Lord Peston

My Lords, I am sure that all noble Lords will wish me to thank the noble Viscount, Lord St. Davids, for bringing the regulations before the House and for explaining them so clearly. It is one more step on the road to the single market, in particular with respect to life insurance.

I have only one question. As formulated the directive allows a range of days—between 14 and 30 —from which one can choose the cooling-off period. The Government have chosen 14 days. Will the noble Viscount elaborate on that?

Viscount St. Davids

My Lords, we have chosen the 14-day period because it will bring life assurance contracts, to which the regulations pertain, into line with those regulated by the SIB. I thank the noble Lord, Lord Peston, for the welcome that he has given to the regulations. The Government attach considerable importance to the completion of the single market for insurance. I know that the insurance directives have the support of the insurance industry and consumer organisations. Later this year regulations will be laid to implement the third life and non-life directives. In the meantime, I commend to the House the regulations which implement the cooling-off provisions of the second and third life directives.

House adjourned at two minutes before eight o'clock.