§ 7.6 p.m.
§ Report received.
Lord Bruce of Donington moved Amendment No. 1:
After Clause 13, insert the following new clause:
§ ("Requirements to inform the Actuary and obtain his report
. After section 22A of the Insurance Companies Act 1974 there shall be inserted—
Report on long term business.
22B. Regulations may be made placing a duty on an insurance company to provide the appointed actuary regularly with such information as he may reasonably require about the financial conduct of its long-term business and to obtain a report from him before making significant changes in that conduct.".").
§ The noble Lord said: My Lords, I beg to move Amendment No. 1 standing in my name on the Marshalled List. Your Lordships will recall that in the course of the debate in Committee my noble friend Lord Jacques raised the question of the position that occurred in 1974, when two life assurance companies failed, causing considerable hardship to thousands of policyholders. My noble friend pointed out to your Lordships that one of the companies had failed because it had issued a large number of policies on the basis of a single premium and that arrangement was unsound. The other company failed because it had invested too much of its life policy funds in speculative property investments. My noble friend on that occasion moved an amendment that was designed to remedy that state of affairs by making it compulsory that the actuary be informed by the company of changes in policy.
§ I shall not weary the House by pursuing the detailed arguments that were put forward by my noble friend on that occasion. However, at the conclusion of the debate I did say, if your Lordships recall, that I would like the Government to give further consideration to this question, to see whether there was any way in which the interests of the policyholders could be protected by the company being required to give interim information to its actuary in order that the actuary could maintain a more constant vigilance over the activities of the company rather than, as it were, reporting ex post facto. The amendment that I am moving today is in different terms from the amendment moved by my noble friend and is put forward with the objective of inquiring whether the Government have any further proposals to add in this connection.
§ I am indeed well aware that the British Insurers' Association do not think that an amendment of this kind is necessary and I have had a similar communication from the Life Offices Association to almost identical effect. We in this House always, of course, receive representations from responsible organisations with a considerable amount of respect; but we cannot always feel ourselves bound by the sentiments that 1170 they express. That, so far as I personally am concerned, applies to this particular section. It may well be that the information which is required and the procedure under which it should be rendered, as incorporated in the new clause which I propose, may be inconvenient to the insurance companies.
§ That I willingly concede. But we in this House have a far wider responsibility than just to those who actually conduct the business; we have a very wide responsibility indeed to the public at large who take advantage of the various insurance facilities that are offered to them by the practitioners in this field. These individuals have a right, where we conceive it is wise, to the protection that we can give them. Therefore, I am hopeful that if the noble Lord on behalf of the Government is not prepared to accept the amendment that I have tabled, the Government are at least prepared to consider and, indeed, to declare what additional measures they propose in the light of circumstances that may arise between the times when the examinations by the actuaries and/or the auditors of the company take place.
§ The actions of a company's auditors are, of course, governed by statute. They normally produce a report some weeks, or perhaps even months, after the end of the financial year of the insurance company concerned. The responsibilities of the actuary are limited to a specific period of time. We seek to lay upon the company the responsibility of providing information to an actuary on an interim basis. It may well be that the wording of the amendment that I have tabled is legally defective in a number of ways and, of course, the arts of the parliamentary draftsmen are frequently denied to those of us who very often speak in a purely political capacity. Nevertheless, we are convinced that it ought not to defeat the ingenuity of Government to devise some means whereby interim protection can be secured. Therefore, I am hopeful that the noble Lord, Lord Lyell, who is always most courteous and receptive to matters of this kind, may be able to provide your Lordships and the public at large with some measure of reassurance. I beg to move.
§ 7.12 p.m.
§ Lord Lyell
My Lords, the whole House will be very grateful, indeed very interested, to have heard, the noble Lord, Lord Bruce, proposing the amendment which, as he points out, is marginally different from the amendment and the similar new clause which was proposed by his noble friend Lord Jacques at an earlier stage in the Bill. Indeed, a similar new clause to the one that was proposed in Committee and similar proposals of that type were considered in Committee and at the Report stage in another place. Therefore I think that the House—indeed, all of us—would consider that this matter, which has been explained by the noble Lord, Lord Bruce, tonight and indeed at an earlier stage by the noble Lord, Lord Jacques, has received very considerable and detailed attention. Certainly none of us would quarrel with that. The appointed actuary plays a very important—indeed, a crucial—role in respect of the company to which he is appointed. He depends very much on the information which he is given.
But this process of consideration has shown up the major difficulty which is raised by all the proposed 1171 forms of the amendment: the lack of proper consideration of its particular need and, therefore, of its possible scope. The Bill before us this evening was preceded by a lengthy process of consultation between the Department of Trade and the bodies which are representative of the insurance industry and, indeed, of the actuarial profession. All those who were consulted were invited to submit proposals for matters which were to be covered by the Bill and, indeed, some of those who were consulted submitted proposals and others did not.
The process of consideration of these proposals and, indeed, of the department's proposals for the Bill clearly showed not just the desirability but also the need to explore thoroughly any substantive new proposals in this field. The matter which is covered by this particular clause and this amendment this evening was not put forward by any major body concerned; nor, I understand, was there any consideration within any of them—that is, the Life Offices Association, the British Insurers' Association or, indeed, the actuarial profession—of even the possibility of putting forward an amendment or this particular clause. But it seems that a decision has been taken by those in the industry who have for sometime been pressing for these amendments to avoid any further discussion with various colleagues in the professions and, indeed, throughout the industry.
As a result of this, we are faced with a position where the need for statutory provision dealing with this grave matter—and I should say that the proposed provision has changed considerably during the progress of the Bill both here and in another place—has not been properly discussed by those who would be directly concerned with it. The Institute of Actuaries, in a recent letter to the Government Actuary about the proposal, pointed out, and was at pains to do so, that the Institute remains unconvinced of the desirability of dealing with these particular matters in the present Bill, even through the power to make regulations.
This then is the difficulty that faces the Government. Without proper consultations the need for further regulations, powers, or whatever, cannot be properly assessed, and without assessment the need for legislation is uncertain. But even if we were to suppose a need that legislation was required, its proper content could not be established if there was not full consultation.
I mentioned that the need had not been properly assessed, but without such assessment of what we might require, discussion of any details of the proposed new clause would be inappropriate. However, I certainly think that I could make one or two general comments on the proposed clause and I hope the noble Lord, Lord Bruce, might think that my reply will meet some of the encomium that he showered upon the department, possibly also on me.
Certainly the proposed clause emphasises the continuing role of the actuary; that is very reasonable. But we must remember that there are other important ways by which the policyholder and (as, of course, the noble Lord, Lord Bruce, mentioned at least twice) the public at large are protected. One of the ways is the actuary's annual report. We also have the auditors' investigation and, thirdly, the scrutiny of the company's 1172 annual returns by the Department of Trade and also by the Government Actuary's Department. Moreover, the transformation of the relationship between appointed actuaries and their companies, from one based on professional guidance and individual working practices to one based on statute, we believe could easily turn out to be an erosion rather than a reinforcement of the strength of the relationships which exist between the profession and the clients, which is evident at the moment.
But one new feature of the version of the clause which we are considering this evening is that it would depend upon the Secretary of State to make regulations. Such a device, laudable though it might seem, would not get round the basic difficulty that until the need for these regulations, or indeed primary legislation, was established and examined any statutory provision that might be necessary or indeed appropriate could not be worked out at least sensibly. Supposing a need were established, then we would find that the matters that could be covered by regulations under this clause could all be irrelevant, but the needs quite otherwise. But if we were to look at the clause as drafted, it seems doubtful whether the matters to be covered by regulations under the clause would add much to it.
In other words, this regulation-making feature might only be a device which we could just switch on and off at will. If so, this would really be unnecessary. Clause 37 provides that orders may be made bringing the Act into force on different days for different purposes. It would be very strange to have a section in the Act that was inoperative because of the way commencement orders had been drafted, but then it would not be common practice to include a clause which provided for regulations though not needing them, and which was only going to be rendered operative if a need and a prospective need, even a hypothetical need, were to be established. In view of all of this we believe it is not surprising that the framework would creak if indeed the foundation of the whole clause is faulty, and we believe that laudable though the objectives are the foundation to the clause is faulty. For that reason I am afraid that once again we could not accept this particular amendment and the clause that we have before us tonight.
§ Lord Banks
My Lords, before the noble Lord, Lord Bruce of Donington, gives his reaction to what the noble Lord the Minister has just said, may I say a brief word. I am still a little puzzled as to why the Government do not want this idea, even if they do not want the precise words of this amendment, to be adopted. It is not argued that this information should not be in the hands of the actuary. At least, I understand it is the case that it is generally agreed that the actuary should receive this information. As I understand it, actuaries are not saying that if they did receive this information a burden which was outside their professional competence would be placed upon them.
In most life companies the actuary will be an official of the company and he will be involved in all these decisions, and in many cases he will be the general manager. Therefore, he will know what is going on, and this information will flow to him quite naturally and automatically by his being a prominent, if not the 1173 leading, member of the management team. But where you have a new company they appoint consulting actuaries as a rule from outside their immediate employees; a firm of consulting actuaries who will be their advisers in this respect and will act as their actuaries. I should have thought that in those cases there was just the possibility that this information would not reach the actuaries as early as would be desirable through no fault of the actuary but through perhaps an oversight, or just a disinclination on the part of the company, and if this were a statutory requirement then that situation could not arise.
It would seem to me that what these various amendments have been trying to do, whether they have done it well or not, is just to reinforce what is already happening over the majority of the field, and to see that it happens in perhaps those areas where there could be a tendency for it not to happen unless such steps were taken.
Lord Bruce of Donington
My Lords, I am a little disappointed by the reply that the noble Lord, Lord Lyell, has given to my remarks, in the course of which I introduced this amendment. The noble Lord spoke of no need having been established. I should have thought that the events of 1974 in which thousands of people lost considerable sums of money in fact established a need. The noble Lord spoke of the interested parties as though they consisted entirely of the insurance companies, or their associations involved. When he spoke of consultation with interested parties he was talking of the professional men involved; he was talking of the companies involved. But surely the people ultimately involved are the public at large.
Who is to speak for the public at large who are at risk when these malpractices take place? I may be a little old-fashioned, but I was under the impression that it was one of the prides of your Lordships' House that they, on occasion, could represent the public at large and put forward their views to your Lordships. All I am seeking to do is to make quite sure that those who may be at the receiving end of such malpractices as do occur, and as in fact occurred in 1974, receive an adequate representation in your Lordships' House, and also receive adequate consideration at the hands of Her Majesty's Government.
I willingly accept that ex post facto after the end of the financial year the reports of the actuaries may be in the hands of Her Majesty's Government, or of the appropriate department of state, and that the auditors' reports may also be made public in the normal way, and these reports may be available at varying lengths of time between perhaps six weeks or up to three months after the end of the financial year concerned. But what happens after the reports of the auditors of the insurance company and of their actuaries have been made if, seven days after the report and possibly a year before the next report is to be made, certain malpractices occur?
What happens, for example, if seven days after the approval of the previous year's accounts has been accomplished at the general meeting, and everybody is very happy about it, there is a sudden switch in investment policy which results in unsound investments being made? Is this to lie without any comment until a further year has passed? Until the auditors 1174 make their next report, or until the actuaries make their next report? What this amendment seeks to do is to lay a statutory responsibility on the company to report on a more current basis—if I may use a term which the noble Lord opposite, himself being an accountant, will readily understand, on a management accounting basis—rather than an annual basis so that if these defects occur they can be adequately dealt with at the time.
I realise that I have presented the Government with a formidable problem here. It is difficult to initiate and to draft measures that are capable of being used within ordinary commercial structures on a current basis, yet the risk to the public remains. We on this side of the House are bound to draw attention to it.
We sincerely hope the Government will bear those considerations very carefully in mind as they proceed, otherwise we shall be bound to return to the same theme in circumstances of our own choosing and which may not always be to the convenience of the Government. I do not desire to press the amendment at this stage, because I am well aware of its technical imperfections; but I am sorry to have received the reaction from the Government which the House has received tonight. With those sad concluding words, I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Clause 27 [Transfers of long term business]:
§ 7.31 p.m.
§ Lord Lyell moved Amendment No. 2:
Page 22, line 10, at end insert—
("(3A) In subsection (3)—
§ The noble Lord said: My Lords, subsection (3) of this clause amends a drafting error which is already apparent in Section 42 of the Insurance Companies Act 1974. The first part of the amendment proposes to add a new paragraph to cure two further faults of drafting in that section which were recently pointed out to the Department of Trade. Section 42 was clearly intended to allow the court to relieve a company petitioning to transfer long-term policies from the obligation to publish the notice that has to appear in the London, Edinburgh and Belfast Gazettes in two national newspapers as well. As drafted, it frustrates that intention by requiring the notice to be published in two national newspapers before the court can consider whether such publication is necessary.
§ The first part of that amendment puts the matter right. It will allow a petition to be presented, for the court to consider what publication is necessary, for such publication to take place and, after the required time, for the petition to be considered in full. The second part of the amendment avoids a lack of precision; Section 42(3)(d) refers to the date on which the notice is published. The notice may however be published on more than one date. The amendment 1175 avoids the imprecisions by referring to the first date on which the notice is to be published.
Lord Bruce of Donington
My Lords, we on this side are happy to support the amendment. Perhaps we may reflect as we consider drafting amendments of this type to an Act of 1974 that at that time, whichever Government were in office, they undoubtedly received the advice from their parliamentary draftsman that the clauses had been drafted impeccably and that no possible amendments were necessary; that they were the incandescence of all legal and draftsmanship wisdom at the time when they were prepared. There is a lesson here both for Governments and Oppositions who in due course will become governments. The lesson is that the parliamentary draftsman's wisdom is not always immutable and perfect, is not always the last possible word that can be conceived in presenting the political intentions of the Government in terms that should be enforced in law. With that reflection, I again express our support for the amendment.
§ On Question, amendment agreed to.