Third Standing Committee on Delegated Legislation
Thursday 28 October 1999
[Mr. Bowen Wells in the Chair]
Draft Insurance Brokers (Registration) Act 1977
(Amendment) Order 1999
4.30 pm
The Economic Secretary to the Treasury (Miss Melanie Johnson): I beg to move,
That the Committee has considered the draft Insurance Brokers (Registration) Act 1977 (Amendment) Order 1999.
Today, we are to consider a draft of an order that the Treasury would like to make. Its purpose is to amend the schedule to the Insurance Brokers (Registration) Act 1977 that prescribes the number of members of the Insurance Brokers Registration Council and how they are to be chosen. Anticipating that the original provisions might need to be changed, Parliament wisely provided powers for the Treasury to amend those provisions. I shall, first, explain the background to the proposed changes, then the change itself and, finally, offer reassurance that the necessary consultation has taken place.
Before doing so, however, I should acknowledge the contribution to the council of the hon. Member for Ryedale (Mr. Greenway). In his capacity as treasurer of the IBRC, he has played an active role in steering the council through recent difficulties. The Government appreciate that his contribution--alongside that of the chairman and all current members of the council--has helped to ensure that the council continues to discharge its statutory functions. For their part, the Government have both encouraged and reinforced the council with recent appointments.
Why is it necessary to change the schedule to the Act? Hon. Members will be aware that the Government have placed before this House a Financial Services and Markets Bill, now in Committee. The thrust of the Bill is to create a single statutory regulator for the financial services sector. Last year, before the Bill was introduced and having consulted interested parties, the Government decided that as regards the distribution of general insurance--as distinct from long-term life insurance--statutory regulation might not be appropriate. It is a matter of balancing the costs and rigidities of statutory regulation against the requirements of consumers for adequate protection. In our view, and in the view of many who replied to our consultation, the case for statutory regulation was not proven.
However, recognising that there is genuine concern about the need for high standards of business conduct and propriety among those businesses that distribute general insurance, my predecessor, the Minister for Energy and Competitiveness in Europe, the right hon. Member for Airdrie and Shotts (Mrs. Liddell), announced in July 1998 that the Treasury would look to the insurance industry and the general insurance intermediaries to work together and devise an effective non-statutory means of promoting high standards of conduct. I am pleased to say that progress in forming a General Insurance Standards Council has so far been very encouraging. I hope that all those businesses that gain financially from the distribution of general insurance will respond positively to the challenge of self-discipline.
Our intention is to repeal the existing statutory regulation in the field of general insurance distribution. We propose to take powers under the Financial Services and Markets Bill to repeal the Insurance Brokers (Registration) Act 1977. That Act set up a council and charged it with carrying out certain functions. Those persons who wish to trade as insurance brokers--sole traders, partnerships or bodies corporate--must register or be enrolled by the council. Registered brokers must abide by rules set out by the council, which include a code of conduct, provisions regarding professional indemnity insurance and requirements for financial adequacy, accounts and statements. It is an offence to trade as an insurance broker without being registered. The costs incurred by the council are met from registered fees paid by the broker community. There is no public funding of the council.
Until the Act is repealed, however, the council remains answerable for the discharge of its statutory functions. Given the expectation of its being wound up, it is reasonable that its approach should now be one of active care and maintenance. The changes we propose are intended to help the council to conduct its affairs in that fashion.
As I mentioned earlier, among other matters, the schedule to the Act prescribes the size of the council, the number of its members and how they are to be chosen. The proposals in the draft order that the Committee is now to consider will reduce the size of the council from 17 members to 10. The expectation is that the six members of the current council who have been elected and the four members nominated by the Treasury will serve until the council is wound up.
However, as a contingency measure, the proposals will also allow the Treasury, at the request of the council, to fill a casual vacancy if the council decided that, given its current situation, to hold an election to fill such a vacancy would waste resources.
Subject to its being approved in draft by the House and in another place, the Treasury will make this order. It will lay a further order, subject to annulment in pursuance of a resolution of either House, to replace the existing requirements for elected members of the council with simpler requirements. It seems unlikely that the new election scheme will be activated, but we wish to provide for that in case winding up takes longer than expected. Parliament's original intention was that a majority of the council's members should be elected from the broker community. I assure the Committee that the proposals are designed to ensure that that intention is respected.
Finally, I reassure the Committee that, in accordance with the existing schedule, much of which will remain in place, the council has been consulted on the draft order and on the other order that we propose to make. I am pleased to tell the Committee that the council and my 5 6 officials have worked closely together in developing those proposals. think that they have been successful, which is due in no small part to the councils current members. I commend the draft order to the Committee.
The Chairman: I remind the Committee that the debate simply covers the merits of making the changes proposed in articles 2 and 3, which will merely change the number of members of the council. I shall rule any further discussion out of order, if the Committee should stray.
4.36 pm
Mr. Howard Flight (Arundel and South Downs): Heeding those frightening words, I begin by saying that we are aware of the substantial consultation that has occurred and the significant contribution of my hon. Friend the Member for Ryedale, and that we support the draft order. I cannot resist commenting that it seems a civilised process of death by a thousand cuts for the IBRC.
It is appropriate that the background to the draft order should be recorded, as the Economic Secretary has said. The IBRC has both regulated the financial advice given by insurance brokers and been the regulator for insurance brokers in the sale of general insurance. The Government have made it clear that they intend to disband the council in due course and to repeal the 1977 Act under which it was created. The arrangements are intended to handle its decent demise in the meantime. I note that the largest group that the Treasury can appoint is accountants. As the Economic Secretary said, the draft order will enable the Treasury to fill places without holding elections if members representing the insurance broking industry resign.
Given the creation of the new General Insurance Standards Council and the demise of the IBRC, I should like to ask the Economic Secretary some questions. Is it correct that about 900 insurance brokers will initially need to become members of the Personal Investment Authority and then of the Financial Services Authority on the enactment of the Financial Services and Markets Bill in order to be regulated to carry on business previously regulated by the IBRC?
I do not fully understand the constitution of the new GISC. I know that it will help the FSA to ensure that standards are good, but will it be a statutory body, or will it remain a voluntary body? How will it fit into the tightly ordered new regulatory regime that will be created under the Financial Services and Markets Bill? Does the Treasury intend that insurance brokers will be subject to statutory regulation under that Bill? The full picture on the order cannot be said to have unfolded without our understanding what is intended on that front.
I shall close as I began. We all know that the order is part of a delicately organised arrangement to end the existing system. We support the order.
4.39 pm
Mr. John Greenway (Ryedale): I am grateful to you for calling me to speak, Mr. Wells, as I have not been appointed to the Committee. I rise to speak under the general rule that all Members may speak.
I am grateful for what the Minister said about the work that we in the registration council have been doing. I was first elected to the IBRC in 1991. Were the changes in the draft order not being made, we would be in the throes of another election. As I walked along the Committee Corridor, I found it incongruous that hereditary peers were having the first election of their lives, while I was about to discuss not having an election in the IBRC. I can confirm what the Economic Secretary said: the council is content with the order. I would put it more strongly and say that, were the Committee not to approve the order, an election would have to be held immediately. My current term of office ends on 30 November, as does that of two other members.
I shall give some background for the benefit of colleagues. When the Government announced last summer that they were minded to abolish the IBRC and invite the insurance community to create a non-statutory regulatory body--that answers some of the questions asked by my hon. Friend the Member for Arundel and South Downs (Mr. Flight)--11 of the 17 members of the council, including the five members appointed by the Treasury, resigned at the end of October, almost a year ago. We now have three--shortly to be four--recently appointed members, and I can confirm that they are working extremely well.
Six of the elected members remained out of respect for the insurance broker community, to enable insurance brokers to continue to comply with the Act and for there to be effective regulation of insurance brokers. I am happy to confirm, too, that 90 per cent. of brokers have paid their fees. After some difficulty, I am happy to say, as treasurer, that we are now well solvent. We can pursue, through disciplinary proceedings, those brokers who are in breach and who may be the subject of a complaint from policy holders.
We are currently working in a vacuum until the General Insurance Standards Council issue is resolved and until the broker community itself resolves the question of whether one regulatory body, which applies to all retail sales of general insurance, has sufficient ability to demonstrate the great degree of professionalism necessary to the insurance-buying public.
That is no contention the contentious part of the background to the matter, but there is no contention within the broker community about the need for the order, which will enable the council to continue to operate as it does now. It is a statutory body that was set up by an Act of Parliament. It started as a private Member's Bill promoted by Jack Page--whom you will remember as a long-standing Member of the House, Mr. Wells--which the then Government adopted.
Sadly, the council works under a very restrictive piece of legislation, which is out of date in many respects. Some of us thought that it could have been modernised, but the Government a different view. we are required to continue to operate until such time as Parliament makes a final decision on the council's future. The order will assist us in that regard, and I am confident that we can continue to provide effective regulation for insurance brokers until Parliament decrees otherwise.
4.43 pm
| 
