In moving the amendment, I shall speak also to Amendment 50D in this group. Amendment 50B does what all good financial service providers should, which is to help people to understand risk so that they can make an informed choice about the sort of product to buy and the sort of price that is worth paying. The amendment very much covers financial products such as annuities, where consumers are really buying blind as very often providers fail to reveal the risks covered or their service charge. It is bundled up in one price, without knowing the degree of risk that is covered or, indeed, the service charge being taken by the provider. So consumers are presented with an insurance quote for terrorism, in the example just given, but that may not explain the underlying risk that it has been assessed that they face and therefore need to be covered for, and they have no way in which to find out why that quote comes to be. Is the risk associated with where they live, underneath a plane that might drop, or is it based on their life expectancy or assumptions about future market movements—or, as we have seen, some change in the likelihood of flooding, terrorism or anything else. In other words, the underlying risk is not obvious.
The amendment tries to get greater clarity, in addition to the financial market, about life annuities and things like that, and car insurance. The Competition Commission in 2013 reckoned that car insurance was not working well for consumers, as they have very little information about the add-on to insurance products, such as replacement cars in the event of an accident. It is impossible to know how much that cover is worth when it is in with your car insurance.
In the Commons, the Minister said:
“The amendment is unnecessary because the Financial Conduct Authority’s conduct of business rules already cover the provision of pre-contract information”,
and claimed that,
“the requirement to disclose risk information … could have an adverse impact on the insurance market”.—[Official Report, Commons, Consumer Rights Public Bill Committee, 4/3/14; col. 428.]
According to the Government, it would require insurers to disclose their business model and confuse consumers, because companies use different models to calculate risk. What it means is that the degree of risk that the insurance company thinks it faces, and therefore why the charge should be there, is absolutely not explained to customers or clients.
The Minister also cited an apparent absence of demand for consumers to know how their premiums are calculated. I consider that that somewhat underestimates people’s attitude for information. As soon as they understand the importance of it, and therefore the effect that it has on the price and how much they are willing to pay, they may understand more. If young drivers, who get a very high premium, are told that that is because so many young people drive at night, they may be able to say, “I promise not to drive my car at night—could I have a lower insurance premium?” We know that exactly that has happened, but it took that degree of knowledge for young drivers—admittedly, represented more as a group—to be able
to negotiate a different sort of insurance once they knew the underlying risks for which the insurance company was charging them more.
Transparency from providers to consumers should be one of the things that we try to get. It is particularly important with car insurance because it is a captive market—we all have to have it. I am assured that that means 26 million cars, which sounds like rich pickings for any industry. It is not a very competitive industry, in that only four companies account for half the £13 billion market. So premiums are high, and it is an example of where groups of consumers, if they understand more about their risk, might be able to negotiate a better deal. It is probable that everyone in this Room has managed to lower their car insurance premium by phoning up and complaining. You can usually get your car insurance reduced, which tends to suggest that it is not a very competitive market.
We will come on to another issue, which is that the add-ons often cover things like legal expenses, but again we are not told what the real degree of risk is and therefore it is impossible to know whether they are worth buying or whether it would be better to cover oneself through the house insurance premium for all legal costs rather than just those for the car. Without this knowledge, it is very difficult to shop around.
3.45 pm
Amendment 50D in this group is slightly different but it concerns the insurance industry and hence is grouped here. It concerns the time it takes to process insurance claims. The amendment tries to strike a balance between setting an absolute and perhaps artificial time limit on dealing with a claim while recognising that there are circumstances in which a service really should be provided in a reasonable time. That would include where the impact of whatever it is that someone is making a claim for could either affect their livelihood or their home. We should not leave people without homes or their work for a long time, maybe as the result of flooding or indeed anything else. I am sure that noble Lords will recall what happened after the August 2011 London riots when a number of businesses, often trading as individuals, had to wait months before they could restart their economic activity.
Ministers in the Commons felt that an amendment imposing a time limit might create a perverse incentive for insurers to rush to get people back into their homes before the buildings were ready, but I do not think that the insurance companies are going to be quite as irresponsible as that. Also, the amendment covers such situations because it does not say that the impact on livelihood must be the only determinant for setting a time limit: rather, it states that it should be “taken into account” when deciding what is a reasonable timeframe. If a house is damp and needs a long time to dry out, that would be understandable, but the fact that the house is someone’s home should be taken into account.
Obviously we are dealing with rather serious situations here concerning people whose homes may have been almost swept away by floods or engulfed by fire, so it is
something on which consumers feel strongly, and their insurance companies should move with a degree of haste. I beg to move.