HL Deb 24 February 2003 vol 645 cc8-10

2.56 p.m.

Lord Ezra

My Lords, I beg leave to ask the Question standing in my name on the Order Paper. In so doing I declare an interest as president of the National Home Improvement Council, which depends on the construction industry to achieve its objectives.

The Question was as follows:

To ask Her Majesty's Government what steps they propose to take to alleviate the difficulties of companies in the construction sector obtaining insurance to enable them to continue their business.

The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Sainsbury of Turville)

My Lords, the Government are very concerned by the significant rises in insurance costs and are undertaking a review, led by the Department for Work and Pensions, to assess the scale and nature of difficulties with the employers' liability insurance system. We are also aware of the particular problems in the construction sector, and officials discussed those issues with representatives of the sector on 20th February. The Government are encouraging insurers, brokers and business to work together to ensure that affordable cover is available.

Lord Ezra

My Lords, I thank the Minister for that positive reply. I am glad that the Government are taking the problem seriously. Is the Minister aware that during 2002 the insurance liability burden on the construction industry more than doubled and that it is likely to more than double again in 2003? In some cases firms have been unable to obtain insurance at all which means that legally they will have to cease trading. Bearing that in mind, and while the various studies now in hand are continued, does the noble Lord agree that some interim measures should be taken to enable firms to continue in business? If that is not done, is it not likely that uninsured cowboy traders could take over the business?

Lord Sainsbury of Turville

My Lords, the situation is serious. There have been substantial increases, particularly in the construction industry. Increases of 200 per cent have been reported. However, seeking interim measures is another matter as it is not clear what they would be, other than the Government providing insurance. I believe that that would he regrettable because of the inability of the Government to do other than take all the worst risks, and getting out of the situation would be extremely difficult. This is a complex market. We need to be absolutely certain about the evidence, the key issues in the market and the case for, and objectives of, reform before we take any action.

Lord Marsh

My Lords, does the Minister agree that there are two key aspects to the problem; first, the very high level of awards, and, secondly, and equally importantly, the sheer cost of mounting a defence which increasingly means that people, although believing themselves innocent, cannot afford the cost and are forced to settle out of court?

Lord Sainsbury of Turville

My Lords, a number of reasons have been suggested for the situation. The insurance industry attributes rises in premiums to factors ranging from the effects of 11th September to the growing use of no win, no fee arrangements that lead to more personal injury claims and new types of claims such as stress. All those matters contribute to the situation. Also lower interest rates have an effect on the cash flow situation and on falling equity values. A whole range of matters affect the situation and before we take any action we must be clear which matters are important and where action is possible.

Lord Elton

My Lords, does the Minister agree that the problems of small professional roofing companies, who are probably having to bear the highest increases in premiums, have nothing to do with September 11th or with no win, no fee cases? They are the victims of something that may drive many—possibly all—of them out of business in the near future. Can he assure us that the review that he is undertaking will come to a swift conclusion and that those of us who are dependent on such companies to keep the rain out of our houses are not left with no recourse other than illegal cowboys?

Lord Sainsbury of Turville

My Lords, I agree that small roofing companies are probably not affected by September 11th. We are discussing the capacity of the market. If that capacity is affected in one area, that can have knock-on effects in other parts of the market.

The construction industry faces particular issues, one of which is that it does not have an especially good record on health and safety. In particular, an increasing difficulty is that of insurance companies distinguishing between those companies that have good health and safety records and those that do not. That may be one area where one may find improvement in the market.

Lord Ezra

My Lords, the Minister said that it may be difficult to find a short-term solution. Will he bear in mind that the Government, through the insurance premium tax, have benefited enormously from spiralling insurance charges? Cannot they set aside some of those proceeds to help firms in especial difficulty?

Lord Sainsbury of Turville

My Lords, the review will report in the spring—and quickly. As I said, we do not consider favourably any idea that the Government should start acting as an insurer of last resort, because of the initial difficulty of doing so and the subsequent difficulty of getting out of such an arrangement. Also, setting up such a scheme might well take considerably longer than would trying to correct matters in the market place.

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