Insurance (Long-term Policies) (Hansard, 6 July 1977)

§ Mr. Clinton Davis

The purpose of the Insurance Companies (Linked Properties and Indices) Regulations 1975 (S.I. 1975 No. 929) is to safeguard the interests of the policyholder by ensuring that benefits under linked long-term insurance 543W policies may only be determined by reference to the value of suitable assets or to suitable indices of asset values. This is also my overriding concern in considering dispensations from these Regulations under Section 68(4).

The regulations restrict the assets and indices of asset values by reference to which benefits under linked long-term policies may be determined to a list that follows closely the suggestions made in paragraph 137 of the Report of the Committee on Property Bonds and Equity-Linked Life Assurance chaired by Sir Hilary Scott (Cmnd. 5281). In the light of events since the Scott Committee reported in 1973, I am adopting a cautious line in considering future requests from insurers for dispensations under Section 68(4).

I will be guided by the following principles, which are to be read together: (i) I should not permit benefits to be linked to any asset not already permitted under the regulations that is not a permitted investment for a unit trust authorised in Great Britain—in other words, not a security within the meaning of Section 26 of the Prevention of Fraud (Investments) Act 1958.

(ii) As for unquoted securities, in which authorised unit trusts are permitted to invest a limited proportion of their assets, I do not consider it appropriate for me to attempt to identify those which are acceptable as assets to which benefits may be linked in the way suggested in paragraph 137 of the Scott Committee report. I do not, therefore, propose to use my powers under Section 68(4) to permit benefits under policies to be linked to securities for which there is no quotation on a recognised stock exchange, unless the security is simply a vehicle for investing in permitted assets.

(iii) In the case of all other applications for the linking of benefits to non-permitted assets, including applications in respect of unquoted securities that are simply a vehicle for investing in permitted assets, I shall only be prepared to exercise my powers under Section 68(4) where I can readily be satisfied that the proposal is likely to be advantageous to prospective policyholders and not detrimental to other sections of the public, and that the following criteria are met: (a) that a generally acceptable and reasonably reliable market value for the property 544W can be obtained; (b) in the case of types of property for which there is no continuously available market price, that there is a professional body whose members are qualified to act as independent valuers for that property; (c) that the market in the property is not too narrow or specialised; and (d) that the proposal does not increase the chance of loss to the policyholder through fraud or conflict of interest.

In a few cases benefits under existing schemes are already, with my consent, linked to the value of assets not permitted under the regulations. I am considering whether these schemes meet the criteria in paragraph 2 above; if not, I shall be prepared to consider transitional arrangements.