My Lords, I thank the Minister and his officials for their continued engagement on the Bill, which has been very helpful.
The Bill transfers over £1 billion from whiplash claimants to motor insurers. This transfer is only justifiable if the insurers do not retain this gigantic windfall—and, of course, they have promised that they will not. They have promised in writing to pass on to motorists, in the form of reduced premiums,
cost savings made by the provisions in the Bill. A huge amount of money is involved, and a significant promise. Without that promise, I doubt the Bill would have been brought to the House—and without it, it would certainly not pass the House.
On Report, we set out the case for checking that insurers keep their promise. The Government accepted the need for checking the insurers’ compliance and committed to bringing forward in the Commons a mechanism for doing that. New Clause 11—Commons Amendment 3—is the proposed mechanism. I was pleased to see a mechanism in the Bill, but was surprised by its length and complexity. The new clause is very long and very complicated. The whole Bill, before this new clause, ran to only 16 pages, and the new clause by itself adds a further three pages.
When on Report we debated the issue of checking on pass-through, and when this was discussed in the Commons, there was an argument in favour of a much simpler approach. We saw the way forward as simply giving the FCA the power to demand whatever data it considered necessary for the purpose, and then to make an assessment of whether and to what extent insurance companies had in fact passed on the £1 billion to motorists via reduced premiums. I would be grateful if the Minister could explain why the complex approach taken in new Clause 11 is better than the simple approach I have just described. In particular, I would be interested in what influence any specific competition concerns may have had in producing the baroque structure of the new clause.
There are a couple more points where additional information would be helpful. The first is to do with anonymity. The Minister’s officials have confirmed that the report on compliance mentioned in new Clause 11 would reference only aggregated data. It will not name companies that have broken their promise to pass through the savings made for them by this Bill. In a written note, the Minister’s office said:
“It would be an extreme step for the Government to identify firms individually and this type of action against a particular firm—as opposed to holding the industry to account as a whole—could leave the Government open to challenge, both on the argument that the Government has facilitated anti-competitive behaviour and further on human rights grounds”.
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It seems odd to suppose that holding the whole industry to account is likely to have any practical effect, especially if most insurers are compliant with a few significant outriders who are not. Will the Minister explain the grounds for the concerns about naming these promise-breakers? How could naming a non-compliant insurer be anti-competitive? How can depriving customers of vital market information about the breaking of a financial promise do anything except promote competition? Whose human rights would be infringed by disclosing the names of the promise-breakers, and how?
Why this anonymity? Surely it is in the interests of policyholders and potential policyholders to know which insurance companies cheated. If they do not know this, then existing policyholders have no basis for claiming redress or changing suppliers. New policyholders will be buying products from organisations that have broken a serious and public financial promise.
Whose interest is served by not naming insurance companies who have broken these promises? Certainly, it does not serve the interests of the customer.
There is a related issue to do with the notion of redress. As the Minister has explained, the new clause goes into detail about the powers that the FCA will have to compel insurers to provide the data it needs to make an assessment of pass-through. There is no mention of any powers to impose a penalty if insurers are found to have welched on their promises. The Minister has assured us that the FCA’s existing powers would allow it to impose penalties for breach of the insurer’s promise, but I would be grateful if the Minister would confirm in particular that an insurer’s substantive failure to keep its promise would be a breach of the FCA’s requirement that customers be treated fairly, and that such a substantive failure would breach the FCA’s TCF desired outcome 1.
The outcome in question is that consumers can be confident that they are dealing with firms where the fair treatment of customers is central to the corporate culture. This is particularly relevant when the fair-pricing practices of insurance companies are under question and being investigated by the FCA. I am sure that we are all familiar with stories about loyal, continuing customers paying more than new customers for the same product. This raises questions about whether fair treatment of customers is in fact central to the corporate culture of insurers and whether the insurance marketplace is as competitive as the Government have claimed.
Customers need to know whether their insurers have acted fairly and kept their promises; insurers need to know that they will be punished if they do not. I look forward to the Minister’s reply.