§ 7.29 p.m.
§ Lord WALLACE of COSLANY rose to move, That the draft Insurance Companies (Authorisation and Accounts: General Business) Regulations 1978, laid before the House on 4th April, be approved. The noble Lord said: My Lords, these draft regulations are designed to fulfil an obligation to the EEC to introduce into our domestic law provisions implementing the requirements of the European Communities' First Council Directive on the Co-ordination of Laws, Regulations and Administrative Provisions Relating to the Taking-up and Pursuit of the Business of Direct Insurance Other than Life Assurance, usually referred to as the Non-Life Establishment Directive. They represent the third major step necessary to bring our law into line with that Directive. This process was begun by the two sets of regulations made under Section 2(2) of the European Communities Act 1972 on 29th September last year, which modified the Insurance Companies Act 1974.
§ The first of these—the Insurance Companies (Classes of General Business) Regulations 1977—came into operation on 1st January 1978. They brought about almost entirely technical changes, and will have no direct effect on the operation of existing companies. The second set—the Insurance Companies (Solvency: General Business) Regulations 1977—will introduce modifications to the solvency requirements contained in the Insurance Companies Act 1974 as they apply to general business covered by the Directive, when they come into operation on 31st July 1978: the same date as this draft Instrument is intended to take effect.1073
§ The draft regulations before noble Lords this evening are concerned with the question of authorisation to carry on general business and related matters. They therefore supplement and modify the provisions of Part I of the Insurance Companies Act 1974, and introduce consequential modifications to Part II of the Act, but only with respect to those insurance businesses to which the Non-Life Establishment Directive applies. The 1974 Act will continue to apply in its existing form to all life assurance business, and to certain types of non-life business which are excluded from the Directive.
§ Apart from Lloyd's, which is subject to special provisions in the 1974 Act, the most significant category of non-life insurance which will be not subject to the conditions in these regulations is that of companies applying to carry on reinsurance business only. The regulations themselves do not introduce any fundamental change to the procedures for authorisation which are already followed under the powers contained in the Insurance Companies Act 1974. They do, however, set out in greater detail the conditions which must be met before authorisation can be granted, and they impose some new requirements both on the Secretary of State and on insurance companies carrying on business here.
§ Noble Lords may find it helpful if I confine my remarks to those regulations which introduce significant changes. Regulation 3 implements specific provisions of the Directive allowing authorisation for only part of a class of insurance business and requiring an additional authorisation before a company can extend its existing business to further classes of insurance business. It will take the place of Section 8 of the 1974 Act which, by virtue of paragraph 3 of the Schedule, ceases to apply to companies covered by the Directive. Regulation 4 imposes new requirements on the Secretary of State to come to a decision on an application from a body with its head office within a Member State of the EEC within six months and in the event of a refusal, to give the applicant the reasons for the refusal.
§ Regulation 5 introduces a major change. It sets out the main conditions which must be met before an authorisation to carry 1074 on a general insurance business can be granted. Henceforth these conditions will vary according to whether the applicant has its head office within Great Britain, within another Member State of the Community or outside the Community. In each case however, the conditions include the submission to the Secretary of State of a scheme of operations giving the information specified in Regulations 6 and 7 about the business that it is intended to carry on. This is designed to enable him to form a judgment about the viability of its proposed operations. It is already the practice of the Department to request business plans from applicants for authorisation, and in implementing this provision of the Directive we are therefore doing no more than formalising an existing procedure.
§ For the rest, the House will note that, while the conditions applying to United Kingdom applicants and applicants from outside the Community include provisions relating to a minimum margin of solvency, those relating to applicants from other Community countries do not. This is because, under the terms of the Directive, the solvency of a Community insurance company as a whole is a matter for the supervisory authority of the Member State in which its head office is situated. Such a company wishing to set up an agency or branch here must, however, produce a certificate from its head office supervisor of the kind specified in Regulation 8. This must confirm inter alia that that company can meet the solvency requirements of the Directive. In reverse, United Kingdom companies wishing to establish an agency or branch elsewhere in the Community can take advantage of reciprocal arrangements. Supervisory authorities in other Member States will thus accept certificates relating to solvency issued by the Secretary of State.
§ I will mention specifically only one other of the conditions imposed by these regulations, which is the requirement set out in Regulation 9 for overseas companies—whether their head office is elsewhere in the Community or outside it—to appoint and maintain a resident general representative in the United Kingdom. This is a provision which is new to our legislation. It implements specific provisions of the Directive and will ensure that there shall always be a legally responsible person here representing the 1075 company concerned. This requirement will apply from 31st July to companies already carrying on general business through an agency or branch established here, as well as to new applicants for authorisation.
§ I now come to a point that the noble Lord, Lord Cullen of Ashbourne, has already mentioned to me. I should mention that concern has been expressed in the Joint Committee on Statutory Instruments, and in another place, about the use of the term " private law " in Regulation 5(1)(a)(iii). The expression is taken from Article 8(1)(a) of the Directive, where it is considered that it is used in the sense normal in Continental Europe; namely, as meaning law dealing with those relations between those individuals with which the State is not directly concerned. Our law does not have this fundamental distinction between public law and private law, but it is nevertheless necessary to give effect to the words of the Directive. The Government considered that the likelihood of this terminology giving rise to practical difficulties in insurance is remote, but, in view of the views expressed, intend to examine the possibility of introducing a short amendment order seeking to define the expression.
§ I hope that I have shown that these regulations, however complex they may appear in detail, have a logical and consistent basis. The Government have consulted closely with the British Insurance Association and other interested bodies in drafting them. We are now entering a period of increasing co-operation between the supervisory authorities in the countries of the Community in order to reduce the unnecessary barriers, while continuing to take the necessary steps to safeguard the position of policyholders. I believe that our industry readily accepts the challenge and the opportunity that this presents, and has the underlying strength to take advantage of it to the benefit of our economy and prosperity generally. It is in this spirit that I recommend the regulations to the House. I beg to move.
§ Moved, That the draft Insurance Companies (Authorisation and Accounts: General Business) Regulations 1978, laid before the House on 4th April, be approved. —(Lord Wallace of Coslany.)1076
§ 7.38 p.m.
§ Lord CULLEN of ASHBOURNE
My Lords, I am grateful to the noble Lord, Lord Wallace of Coslany, for having gone through the regulations so very carefully and in such detail. As the time is getting late, I do not propose to refer to them myself, as they have been so very carefully explained to us. However, I can confirm from inquiries that I have made that the insurance industry has been fully consulted —and this is clearly a most important part of this matter. While we welcome these regulations as a further positive step towards an EEC common market in insurance, there is no gainsaying the fact that progress has been disappointingly slow. I am very grateful to the noble Lord for what he has told us about the Government intending possibly to make an amending order on the subject of public law and private law.
There was one other question I was going to ask the noble Lord, and it is this. There is no provision for a right of appeal to the courts from a refusal by a Secretary of State to grant an application for authorisation, notwithstanding that Article 12 of the EEC Directive provides thatany decision to refuse an authorisation shall be accompanied by the precise grounds for doing so and notified to the undertaking in question. Each Member State shall make provision for a right to apply to the courts should there be any refusal".In the opinion of witnesses from the Department of Trade, this provision in the Directive did not require the conferring of a right of appeal on the ground of merit, and it was consistent with the Directive to allow an appeal where it was alleged that the Secretary of State had mis-directed himself in law or been guilty of a breach of the rules of natural justice. I should be grateful if the noble Lord would give the Government's views on that point when he comes to reply.
Freedom of establishment is certainly important, but it is to some extent of limited value to us because most British insurance companies have been long established in the other Member States. What would be far more beneficial would be a real freedom of services. By this I mean freedom to cover the risks of one country by insurance contracts in another country, without having a place of business in the country where the risk is situated. 1077 This is what is really needed if we are to have a meaningful common market in insurance. But here we run into a serious difficulty. We in the United Kingdom have for many years been transacting a greater volume of insurance business outside this country than domestic business. In the EEC the conception is quite different, and insurance control legislation is usually rigid and restrictive, being designed to protect their national insurers, who mainly work within national boundaries, and also their domestic interests.
There are two ways of instituting freedom of services: legislation, either of the country in which the service is rendered or of the country from which the service is provided. The former, known as "country risk control", is generally preferred by the other Member States, while we advocate the latter, "head office control". This would suit United Kingdom insurers, and it is imperative for Lloyd's, who operate only through brokers. Fortunately, our approach is pretty well in tune with the aims of the EEC. Consumers in all countries are in favour of head office control. It was chosen by the Commission Services in 1975, and has been accepted by the European Parliament. It is now in the hands of the Council of Ministers' Working Party, who I gather are not renowned for speed. But even when this conundrum is finally solved the question will arise as to whether to defer the freedom until everything is harmonised, which we would deplore, or whether to grant freedom without harmonisation of business where the policy holders do not need the protection afforded by Continental legislation, such as marine and aviation business and the larger commercial and industrial risks.
There are, I understand, other encouraging moves afoot. Recently the EEC Finance Ministers approved in principle a Directive which will eliminate many of the obstacles to cross-frontier insurance in the Community, but it will not take effect for two years. Furthermore, they have agreed to consider next month a proposal granting life insurance companies the right to establish themselves anywhere in the EEC. All this is very welcome, however overdue. The slow progress towards the removal of legal and technical barriers to expanding EEC business has been extremely frustrating, as the insur- 1078 ance industry was expecting to be a major beneficiary of our entry into the EEC. Perhaps we are on the move at last, however slowly.
My Lords, while giving the Government full credit for their co-operation with the insurance industry in their efforts, I must warn them that it will be unavailing if the threat to nationalise the seven largest insurance companies is not withdrawn. I gladly pay tribute to the decision of the Government not to follow, at least not yet, the nationalisation proposals accepted by the Labour Party at its 1976 Conference and not reversed at the 1977 Conference. There is in my opinion nothing that the noble Lord, Lord Wallace of Coslany, could say which would be more beneficial to the future of this industry than that the Labour Party is irrevocably opposed to such a policy. I previously told the noble Lord that I was going to raise this matter, and I sincerely hope that he will be in a position to make a categorical statement to this effect.
In conclusion, my Lords, I have said little about the regulations that we are considering this evening as I knew the noble Lord would give us such a meticulous explanation of them. I have, instead, taken the opportunity to widen the scope of the debate, as it is but rarely that this subject comes before your Lordships, who will need no reminder from me of the vital contribution that is made to our invisible earnings by this industry. The regulations we are debating today need to be followed up by many others at an accelerating pace, so that a Common Market insurance industry is soon achieved, and not nine separate markets.
§ 7.46 p.m.
Lord WALLACE of COSLANY
My Lords, I am very grateful indeed to the noble Lord, Lord Cullen, for his remarks, including his question on nationalisation, though I do not know that I can give satisfaction on that. This is a very important order, and the whole question of our insurance business is of course of vital importance to the economy of Britain, because it is one of the greatest outside interests that we have. The noble Lord made one or two points, and I am grateful that he gave me notice of them.
1079 On appeals, which is a very important point, it is true that these regulations do not make specific provision for appeals against any decision by the Secretary of State to refuse an application for authorisation to carry on insurance business. This matter was considered by the Joint Committee on Statutory Instruments, and I understand it was also considered in another place. Article 12 of the Directive requires that,in the event of a refusal there should be provision for a right to apply to the courts".It was explained to the Joint Committee that recourse to the courts is available already by means of an application for a declaration. This could be sought if the applicant considered that the Secretary of State's decision was unreasonable, contrary to natural justice or based on an error in law.
The existing right is considered by the Government as meeting the requirements of the Article. The Joint Committee has accepted the view in its Twentieth Report. The Committee noted that it accords with the view already expressed by our Select Committee on the European Communities in relation to another Directive. However, I would add that my right honourable friend in another place undertook to draw the attention of the Attorney-General to this matter and to the views expressed there; and I give an undertaking to the noble Lord that the views expressed by him in this House tonight will also be drawn to my right honourable friend's attention.
Then there is the general question of our attitude to the development in the EEC of insurance, freedom and the other points which the noble Lord made. Every country expects that its membership of the Community will result in benefits for certain of its industries and problems for others. Certainly many industries in other Member countries have already begun to enjoy benefits from our membership. One of our industries which we expected to benefit was insurance. So far the benefits to us have been limited because of the slow progress in negotiating Directives and in removing existing national restrictions to new competition. This is disappointing to us, but I believe there is a wider Community interest in a true common market in insurance. There 1080 are growing opportunities to provide insurance services to the world at large. In seeking to take these opportunities we are in competition with others, particularly the highly-developed insurance industries of the USA and Japan. If it is to make full use of these world-wide possibilities, the Community as a whole must marshall its strength, which it can do through creating a liberal internal market, and deploy a united strength.
So far we have had one major directive, the Non-Life Establishment Directive, to which the regulations under consideration are related. The Council of Ministers are about to adopt a new Directive on co-insurance which represents another useful step forward. It has a Life Establishment Directive in draft on which much work has been done. At an earlier stage is a Non-Life Services Directive which is of crucial importance to a true Common Market. It is the desire of the Government to see a truly liberal Directive in this latter field. We appreciate the difficulties which some Member States see in allowing free services in those areas where the mass consumer is involved. Each Member State is anxious to preserve what it regards as an adequate protection for the consumer. However, it is in the big commercial risk field that freedom is most important and the Government are pressing hard for a major breakthrough in this area.
The noble Lord has referred to the need to make progress here in advance of full harmonisation of the law. The Government fully accept this view, and will continue to make their view known in the Brussels negotiations. The noble Lord referred also to head office control of companies engaged in service business in other Member States. I can assure the noble Lord that this also is a point to which the Government attach great importance.
Now, my Lords, comes the key question of nationalisation. This is a ticklish one for me to deal with and noble Lords will not expect any stirring statement to hit the headlines in the Press. The noble Lord expressed some concern, rightly expressed some concern—I will be fair and make that point—on threats of nationalisation of the insurance industry. In answering him I do not think I can do better than to draw attention to what the Prime Minister has already said on this 1081 subject. First, the Government do not intend to introduce legislation on this matter in the lifetime of this Parliament. Secondly, the Prime Minister will not be able to recommend proposals which others have made for such nationalisation in the next Election Manifesto of our Party. I can give this assurance to the noble Lord, but I do not think he can expect me to go further than I have already done. I thank the noble Lord for his patience. We have had, at least, a little company in our debate.
§ Lord STRABOLGI
My Lords, I beg to move that the House do now adjourn during pleasure until half-past eight.
§ [Sitting suspended from 7.53 p.m. until 8.30 p.m.]