HL Deb 27 May 1993 vol 546 cc395-400

11.37 a.m.

Viscount St. Davids

My Lords, I beg to move that this Bill be now read a second time.

The Bill is a short enabling measure. Last November the insurance industry announced that, with effect from 1st January this year, it would severely limit the cover given to industrial and commercial properties for damage caused by acts of terrorism. That limitation of cover was for prudent commercial reasons following the loss of their own reinsurance protection from predominantly large European reinsurers. That action was against a background of a sharp contraction in reinsurance capacity worldwide and worsening claims experience in mainland Great Britain.

That development was understandably of great anxiety to British industry and commerce. The Government concluded that it was necessary to ensure the continued availability of insurance cover for loss and damage arising from acts of terrorism. Accordingly, after discussion with interested parties, my right honourable friend the President of the Board of Trade announced on 21st December 1992 that the Government would act as a reinsurer of last resort to insurers of industrial and commercial property in Great Britain with effect from 1st January this year.

I should say that while it is primarily industrial and commercial property that is affected, the restriction on coverage of losses stemming from terrorism applies also to other properties for which the policyholder was not a private individual. So the new arrangements apply to all such property, including buildings such as churches, about which I shall say more later.

The arrangements deal with the consequences of a partial market failure. The Government's involvement will last only as long as is necessary to remedy that failure. The arrangements do not represent a subsidy by the Exchequer, nor do they represent state aid. Over their lifetime, the arrangements are expected to be at nil cost to the taxpayer, but at the same time the Government seek not to expose insurers to undue risks which might threaten their solvency. I must emphasise that the arrangements provide for reinsurance, not compensation. If insureds do not buy the proper insurance cover, the Government will not entertain claims for compensation in the event of loss or damage.

The structure and operation of the arrangements are described in the explanatory summary attached to the Notes on Clauses, copies of which are in the Library. Briefly, insurers wishing to offer property insurance, including terrorism cover, will become members of a mutual reinsurance company, the Pool Reinsurance Company Limited. Pool Re (as it is now known colloquially) will reinsure all terrorism risks situated in Great Britain, borne by its insurer members, for which an additional insurance premium has been paid by the insureds. In turn, the Secretary of State will reinsure Pool Re, and Pool Re will pay the Government a reinsurance premium.

An important feature of the arrangements is that insurers will provide, within their basic property damage policies, £100,000 of cover for each of buildings, contents and business interruption. That will occur automatically and without the need to pay an additional premium. This is especially helpful to small businesses. Where there are claims, the insurers will bear the first £100,000 under each section of the basic property policy, recovering claims beyond that amount from Pool Re. They will be paid for out of the premiums received. If those resources are exhausted, the company will raise a levy on its members of up to an equivalent of 10 per cent of the premiums they have remitted. Should those additional resources also be fully used up, the company will claim on its reinsurance contract with the Government.

Turning to the Bill itself, Clause. 1(1) empowers the Secretary of State to make payments in fulfilment of the obligations he has entered into under the agreement to provide reinsurance cover. The clause also empowers the Secretary of State to make payments under any guarantees he may have given. It is envisaged that he may wish to give guarantees to lenders to ensure that Pool Re could make prompt payment of claims from its members. Entering into the agreement and any guarantees would be subject to Treasury approval. Clause 1(2) would require that the agreement with Pool Re be laid before Parliament after the passing of the Bill and as soon as it is entered into. Clause 1(3) requires government premiums from Pool Re to be remitted to the Consolidated Fund.

Clause 2 defines the reinsurance arrangements to which the Act would apply. Clause 3 provides that the Act does not extend to Northern Ireland, where there are separate arrangements in existence.

I think I should comment on the degree of retrospection provided by the Bill. The Bill will not authorise any payments that might have been made before it comes into force. However, the provisions of Clause 1(1) would authorise payments to be made in future under an arrangement that may have been entered into before the Bill comes into force. The provisions of Clause 2(1) authorise payments to be made under an agreement which relates to events that occurred before that agreement came into being. If the passage of the Bill is completed quickly, it is the latter situation which will occur, and the agreement to be concluded will cover events occurring since 1st January 1993, notably the Bishopsgate bomb.

Before concluding, I should like to comment on two issues which I know cause some anxiety. First, the premiums that policyholders will have to pay in future to insure against terrorist damage are an unfortunate extra cost that businesses and others will have to face. We have no wish to see any unnecessary increases in premiums. But we must ensure that the scheme operates properly and that so far as possible normal market conditions apply. Unless the premiums charged have proper regard to perceived risks and to claims experience, it will be impossible to return them to normal market conditions.

No one would wish to see government involvement as a permanent feature of this sector of the market. Such involvement would of course have to be paid for by taxation. Although terrorism premiums are a new charge, we must keep them in perspective and the sums involved are small compared with other business costs. The figures available to the Government suggest that terrorism premiums for large city centre properties are of the order of one-quarter to one-half of I per cent of the annual rent of a typical property.

Secondly, I should like to clear up some confusion about availability of cover for churches. Churches are eligible to be covered by the arrangements. However, it is for the individual Church authorities to decide whether to cover particular churches by paying an additional terrorism premium.

I commend the Bill to the House. The swift passage of the Bill, following the example of another place, will send a clear message both to business in London and throughout the country and to terrorists. The message to terrorists is that business and government together will not permit mindless criminal damage to interfere with normal life for a moment longer than is necessary. I beg to move.

Moved, That the Bill be now read a second time. —(Viscount St. Davids.)

11.47 a.m.

Lord Clinton-Davis

My Lords, I thank the Minister for the brief introduction of the essential purposes of the Bill, and I especially endorse the message, to terrorists in particular, that he announced at the end of his speech. We support the Bill and the reasons which require all the stages of the Bill to be undertaken today. Nevertheless, there are serious disadvantages in undertaking, as a revising Chamber, a Bill on this basis. However, I believe it is the right course to undertake.

I wish to make some brief comments in the next five minutes. Perhaps I may say at the outset of my remarks that we certainly deplore the loss of life and injuries which have been occasioned by the recent acts of terrorism, but which go on all the time in Northern Ireland. Equally, we deplore the scaremongering and hyperbolic press reports by so-called experts about the costs which were occasioned by the explosions at St. Mary Axe, and recently at Bishopsgate. That I believe is to play the game of the IRA and those people serve no value at all in making instant comments.

The Bill has been necessitated because of a shortage of capacity in the international reinsurance market arising from a number of catastrophes over recent years, not confined to terrorism. There has also been a withdrawal of support from Britain's insurance market by a number of European reinsurance companies. Consequently, in the wake of the events referred to by the Minister and because market forces simply cannot deal with every contingency, even this Government have recognised that it was necessary to intervene.

A suggestion was raised in another place on Second Reading that the arrangements contemplated in the Bill might be incompatible with Article 85 of the Treaty of Rome—a point which was not dealt with by the Minister. He referred to state subsidies, state aid, dealt with under Article 92, which is quite different. Article 85 deals with agreements between undertakings on concerted practices which may affect trade between member states and have as their purpose or effect the prevention, restriction or distortion of competition within the Community. The article specifically prescribes certain such arrangements. Can the Minister indicate whether the Commission was consulted about the provisions of this Bill, and say whether he is satisfied that no such infringement of Article 85 arises, bearing in mind the fact that any agreements or decisions prohibited under that article would render them automatically void?

My next point is about reports that have appeared in the financial press to the effect that moves to increase the cost of terrorism insurance could prejudice the effectiveness of the scheme which we are currently considering. Can the Minister indicate whether higher premiums are likely; whether these might, as the press reports indicate, deter people from taking out the cover; and whether the Government are pressing Pool Re to increase its rates? Is the take-up of the new terrorism policies likely to be more restricted than is anticipated?

My own view concurs with that of the Minister. I believe that the premiums in this context represent a very small part of the total costs. But having said that, I am not an expert. The chief executive of the Association of British Insurers has indicated that he believes that the insurance cover will not be taken up on the scale expected. Can the Minister deal with that point?

Finally—since, understandably, we are legislating here with enormous haste, and because the Bill, although small, is nevertheless quite complicated, and in such circumstances mistakes can occur all too easily in practice—I hope that the Government will ensure that Parliament will be kept properly informed periodically about the way in which the scheme will operate. Perhaps he can give an undertaking to that effect.

11.52 a.m.

Lord Boyd-Carpenter

My Lords, before my noble friend replies, perhaps I may take up the point made by the noble Lord opposite as to the undesirability —particularly in view of the function of this House as a revising Chamber—of taking this Bill through all its stages in one day. It is clear to all of us who have listened to both speeches that have been made that it is a complicated Bill involving technical questions of insurance. It would have been much more useful if the House had been able to have a Second Reading debate and then, some days later after consideration of what had been said, noble Lords may have wished to put down amendments, at least to test the soundness of the proposals. I quite realise the need for haste, but I wonder whether it is really the case that the Bill could not have been taken for Second Reading a day or two earlier and a gap introduced.

Another Bill has been similarly treated this week. I believe it is a dangerous tendency of those who manage our business to cut down debate on Bills to one day, all stages other than Second Reading being taken straight away. I hope therefore that my noble friend the Minister will indicate some penitence about the procedure followed and, as the Deputy Leader of the House is present, that we may be assured that this will not become a common practice.

Lord Graham of Edmonton

My Lords, the Opposition were fully consulted on the timetable. If by any stretch of the imagination the noble Lord is under the impression that the intention behind the speed and shortness of time was to cut out the opportunity for debate, I can tell him that that was the last thing in the minds of the business managers. They had in mind the imperative to get this legislation on to the statute book as quickly as possible. Bearing in mind the enormous pressure of the past two or three weeks—and noble Lords will know that there are more than 100 names on the list of speakers for the debate on 7th and 8th June—the House will appreciate the impossibility. Nevertheless, when the business managers look at the business—the approach to facilitate this measure came very much from the Government —they will certainly bear in mind what has been said.

Lord Boyd-Carpenter

My Lords, I neither said nor intended to say that there was any deliberate intention, either on the part of the Government or the Opposition, to eliminate discussion. All I said was that the procedure had that effect; and that, particularly for a revising Chamber, that is very unfortunate and ought, if at all possible, to be avoided in all cases. I was hoping for some assurance from my noble friend the Minister that this will not become a common practice, whether with the agreement of the Opposition or not.

Lord Harris of Greenwich

My Lords, I share some of the anxieties of the noble Lord, Lord Boyd-Carpenter. I also accept that there is need for urgency so far as concerns this Bill, for reasons which we all understand. But as the noble Lord, Lord Boyd-Carpenter, said, this House lives or dies on the basis of its position as a revising Chamber. I am concerned about the increasing tendency in recent years to have arguments of this kind advanced in late May, June and July. I understand the case for the Bill proceeding in the way that has been suggested, but I hope, with the noble Lord, Lord Boyd-Carpenter, that the noble Earl, Lord Ferrers, as Deputy Leader of the House, will understand our concern about procedures of this character.

The Minister of State, Home Office (Earl Ferrers)

My Lords, obviously there is considerable concern among your Lordships that these matters of great importance should not be expedited unduly and unfairly. Of course it is important that they should be given proper consideration. Also, there is the difficulty of trying to fit in a timetable, and the usual channels have to work out a very difficult system by which everything can be dealt with and given its due weight of importance. Certainly I shall take into consideration the matters that have been mentioned.

11.56 a.m.

Viscount St. Davids

My Lords, I am grateful for the constructive approach adopted by noble Lords and for the helpful attitude taken towards the rapid passage of this Bill. I am particularly grateful to the noble Lord, Lord Clinton-Davis, for his courtesy in giving me advance notice of the questions that he wished to raise.

As regards the relationship of the arrangements to the Treaty of Rome, officials have discussed the position with Commission officials and no problems are expected. The terms of the agreement will probably need to be notified to the Commission under Article 85 of the Treaty. But our discussions with officials in Brussels have indicated that there should be no insuperable problems.

As regards the suggestions that there may be increases in premiums, the Government, with Pool Re, have a duty to keep the level of income into Pool Re under review, particularly in the light of claims experience. As with any insurance policy, increased incidence of losses leads inevitably to increased premiums. But the Government remain firm in their commitment to provide the reinsurance cover that the market is currently failing to provide. The Government have no wish to impose unnecessary costs on policyholders and will not wish to see premiums raised unnecessarily. Insureds must remember that the premiums will normally remain only a small part of their total costs.

I will, of course, bring to the attention of my right honourable friend the President of the Board of Trade the request by the noble Lord that the House be kept informed on the progress of this policy and of Pool Re in future.

The support for these matters that is evident in this House, as it was evident in all parts in another place, shows that we are united in our desire to ensure that terrorism will never win. I ask the House to give the Bill a Second Reading.

On Question, Bill read a second time; Committee negatived. Then, Standing Order No. 44 having been dispensed with (pursuant to Resolution of 20th May), Bill read a third time, and passed.