Motion on Amendments 1 to 6
1: Clause 3, page 4, line 17, at end insert—
“( ) The Lord Chancellor must consult the Lord Chief Justice before making regulations under this section.”
2: Clause 5, page 5, line 27, after “injury” insert “or injuries”
3: Before Clause 11, insert the following new Clause—
“Report on effect of Parts 1 and 2
(1) Regulations made by the Treasury may require an insurer to provide information to the FCA about the effect of Parts 1 and 2 of this Act on individuals who hold policies of insurance with the insurer.
(2) The regulations may provide that an insurer is required to provide information only if it has issued third party personal injury policies of insurance on or after 1 April 2020 to individuals domiciled in England and Wales.
(3) The regulations may—
(a) specify the information or descriptions of information to be provided;
(b) specify how information is to be provided;
(c) specify when information is to be provided;
(d) require that information or specified descriptions of information be audited by a qualified auditor before being provided;
(e) make provision about the audit;
(f) require that details of the auditor be provided to the FCA.
(4) Regulations under subsection (3)(a) may in particular require an insurer to provide information, by reference to each of the report years, about—
(a) the amount paid by the insurer during the report period under its relevant third party personal injury policies of insurance in respect of personal injuries sustained by third parties, where the amount of damages for the injury is governed by the law of England and Wales;
(b) the amount that the insurer might reasonably have been expected to pay in respect of those injuries if this Act had not been passed;
(c) the mean of the amounts paid during the report period under those policies in respect of those injuries;
(d) what might reasonably have been expected to be the mean of the amounts paid in respect of those injuries if this Act had not been passed;
(e) the amounts described in paragraphs (a) to (d), determined by reference only to cases where—
(i) the amount paid by an insurer under a policy, or
(ii) the amount that an insurer might reasonably have been expected to pay under a policy, falls within one of the bands specified in the regulations;
(f) the amount charged by the insurer by way of premiums for relevant third party personal injury policies of insurance where the cover starts in the report period;
(g) the amount that the insurer might reasonably have been expected to charge by way of premiums for those policies if this Act had not been passed;
(h) the mean of the premiums charged for those policies;
(i) what might reasonably have been expected to be the mean of the premiums charged for those policies if this Act had not been passed;
(j) the amounts described in paragraphs (f) to (i), determined as if the references to a premium charged for a relevant third party personal injury policy of insurance were references to so much of the premium as is charged in order to cover the risk of causing a third party to sustain personal injury;
(k) if any reduction in the amounts referred to in paragraph (a) has been used to confer benefits other than reduced premiums on individuals, those benefits.
(5) The regulations may make provision about the methods to be used in determining the amounts described in subsection (4)(b), (d), (g) and (i), including provision about factors to be taken into account.
(6) The regulations may provide for exceptions, including but not limited to—
(a) exceptions relating to policies of insurance obtained wholly or partly for purposes relating to a business, trade or profession;
(b) exceptions relating to policies of insurance of a specified description,
(c) exceptions for cases where the value or number of policies of insurance issued by an insurer is below a level specified by or determined in accordance with the regulations, and
(d) exceptions relating to insurers who, during the report period, issue policies of insurance only within a period that does not exceed a specified duration.
(7) Before the end of a period of one year beginning with 1 April 2024, the Treasury must prepare and lay before Parliament a report that—
(a) summarises the information provided about the effect of Parts 1 and 2 of this Act, and
(b) gives a view on whether and how individuals who are policy holders have benefited from any reductions in costs for insurers.
(8) If insurers provide additional information to the FCA about the effect of Parts 1 and 2 of this Act, the report may relate also to that information.
(9) The FCA must assist the Treasury in the preparation of the report.
(10) In the Financial Services and Markets Act 2000—
(a) in section 1A (functions of the Financial Conduct Authority), in subsection (6), after paragraph (cza) insert—
“(czb) the Civil Liability Act 2018,”;
(b) in section 204A (meaning of “relevant requirement” and “appropriate regulator”)—
(i) in subsection (2), after paragraph (a) insert—
“(aa) by regulations under section (Report on effect of Parts 1 and 2) of the Civil Liability Act 2018,”;
(ii) in subsection (6), after paragraph (a) insert—
“(aa) by regulations under section (Report on effect of Parts 1 and 2) of the Civil Liability Act 2018;”.
(11) A statutory instrument containing regulations under this section is subject to affirmative resolution procedure.
(12) In this section—
“the FCA” means the Financial Conduct Authority;
“insurer” means an institution which is authorised under the Financial Services and Markets Act 2000 to carry on the regulated activity of—
(a) effecting or carrying out contracts of insurance as principal, or
(b) managing the underwriting capacity of a Lloyd’s syndicate as a managing agent at Lloyd’s;
“qualified auditor” means a person who is eligible for appointment as a statutory auditor under Part 42 of the Companies Act 2006;
“relevant third party personal injury policy of insurance” means a third party personal injury policy of insurance issued by an insurer to an individual domiciled in England and Wales;
“report period” means the period of three years beginning with 1 April 2020;
“report year” means a year beginning with 1 April 2020, 2021 or 2022; “third party personal injury policy of insurance” means a policy of insurance issued by an insurer which provides cover against the risk, or risks that include the risk, of causing a third party to sustain personal injury.”
4: Clause 12, page 15, line 30, leave out subsection (1) and insert—
“( ) This Act extends to England and Wales only, subject to the following subsections.”
5: Clause 12, page 15, line 35, leave out “This Part extends” and insert “Sections (Report on effect of Parts 1 and 2) (10) and 11 to 14 extend”
6: Clause 14, page 16, line 6, leave out subsection (2)
My Lords, with the leave of the House—or as the House leaves—I beg to move that the House do agree with the Commons in their Amendments 1 to 6.
The Civil Liability Bill will provide effective measures to tackle the continuing high number and cost of whiplash claims, which will lead to lower insurance premiums for ordinary motorists. It will also create a better system for setting the personal injury discount rate.
I should like to take this opportunity to thank noble Lords for their contributions and insightful scrutiny, which have already shown during previous debates how the Bill can be strengthened and improved.
The Commons amendments we are considering today were all brought forward by the Government in the other place. Amendment 1 introduces a requirement for the Lord Chancellor to consult the Lord Chief Justice before setting the tariff. This amendment was introduced to meet a commitment made to this House and, in particular, to the noble and learned Lords, Lord Judge and Lord Hope, at Report.
It remains the Government’s firm view that it is the Lord Chancellor who should set an appropriate and proportionate tariff through regulations. This enables the Government to ensure that damages remain proportionate and continue to disincentivise unmeritorious claims, but following reflection on the helpful points made by this House during debates in Committee and at Report, the Government agreed that there is merit in the Lord Chancellor seeking the input of the Lord Chief Justice before setting or amending the tariff. This will provide the judiciary with a formal route by which to comment on the level of damages for whiplash injuries. Consulting the Lord Chief Justice allows the views of the judiciary to be reflected in the setting of the tariff, as well as by way of the uplift in exceptional circumstances.
Amendment 2 corrects a drafting omission. The amendment clarifies, but does not change, our intent in regard to Clause 5. Clause 5 enables the Lord Chancellor to provide in regulations that the court may increase the amount awarded under the tariff in circumstances which it considers to be exceptional. The amendment adds the words “or injuries” to Clause 5(7)(a), and merely reflects that the amount of compensation specified in the tariff can relate to either a single injury or two or more injuries. This is consistent with the language used elsewhere in the Bill. This amendment makes no material change to the provisions of the Bill, but provides necessary clarification and consistency.
Amendments 3, 4 and 5 have arisen from previous debates, when noble Lords raised concerns about whether insurers would stand by their commitment to pass on the benefits arising from the Bill. Recognising the concerns raised by noble Lords and those in the other place, the Government amended the Bill in Committee in the other place to provide for an effective means for insurers to demonstrate that savings arising from the Bill have been passed on to consumers. This is the new Clause 11, as introduced by Amendment 3.
I am confident that Clause 11 allows the Government to hold insurers to account against their public commitment to pass on savings from the Bill in a rigorous but proportionate way, without risking anti-competitive or overly interventionist practices. The clause was developed after intensive and careful consultation with insurers, accountants, auditors and regulators.
Motor insurance is a highly competitive market and the Government are confident that insurers will pass on savings from the important reforms set out in this Bill, as well as the associated changes to the small claims track limit. In the accompanying policy note published on 6 September, when this amendment to the Bill was tabled, there is a clear explanation of the approach taken and the expectations for subsequent regulations. That policy note should be read in conjunction with Clause 11.
This amendment allows the Treasury to introduce new regulations which impose requirements on insurers to provide information on claims costs, premium income and other factors to the Financial Conduct Authority. Firms will be expected to provide information to the FCA covering at least three years starting from 1 April 2020, and the regulations will specify that insurers must return their information to the FCA by April 2024. This timeframe captures the implementation of the whiplash reforms, together with the impact on the discount rate. I know that some noble Lords have noted that the drafting of this clause is permissive, as is the standard approach when referring to forthcoming regulations. However, I absolutely reassure the House that the Treasury not only may but will bring forward regulations requiring insurers to provide this information to the FCA.
As described in the legislation, the Treasury must then, with assistance from the FCA, prepare a report to Parliament that summarises this information and gives a view as to whether and how individual policyholders have benefited from the Civil Liability Bill reforms and the associated changes to the small claims track. I am confident that compelling insurers to provide information in this way will ensure that the industry does pass on savings to consumers, as it has already committed to do so. These are serious obligations and the industry stands ready to comply.
The FCA will assist the Government in preparing the report and will draw on its regulatory powers to ensure firms under its supervision comply. The FCA may take action against firms that do not do so. This is a serious matter for insurers. I will take a moment to describe the role of the FCA a little more precisely. Clause 11 makes the requirement on insurers to provide information a statutory requirement under Section 204A of the Financial Services and Markets Act, with potential for the FCA to impose penalties where this has not been done. This change, along with the change to Section 1A of that Act, describing FCA functions, means that the duties of monitoring insurers’ compliance with, and requiring them to adhere to, their statutory obligations under this clause form part of the supervisory responsibilities of the FCA.
On this basis, the FCA will expect firms to disclose steps they have taken to comply with the requirement and may take disciplinary action in respect of any firm that does not comply with the new requirements to provide information. In addition, if a firm does not provide information, the FCA may use its full range of supervisory powers to bring about compliance. For example, it may impose a requirement or, if right and proper, use Section 166 of the Financial Services and Markets Act—which my noble friend Lord Hodgson referred to in Committee—to acquire information. However, without the change as drafted in the primary legislation here, the full range of FCA powers could not be used in such a scenario.
As I have explained, the legislation will allow the FCA to engage with firms under its supervisory powers. Failure to provide data would be noted on the firm’s records and might lead to further investigation. The FCA is also able to consider whether the risk of serious harm to consumers and the market is such that enforcement action may be taken, in which case the FCA would be empowered to impose a penalty, publicly censure a firm, or suspend or vary its permission. Of course, as noble Lords would expect, any supervision or enforcement action would ultimately be determined by the facts of the case.
I assure the House that the legislation will ensure that the FCA will hold firms to account, and that the FCA will actively consider appropriate action if firms do not meet the new requirements. In addition, the FCA will, as always, take seriously any breaches that could give rise to consumer detriment and will seek to take action if they suspect serious misconduct.
Representatives of around 85% of the motor insurance market have publicly written, committing to pass on savings from the Bill. The Government believe that the statutory requirement on firms to provide information to the FCA, alongside the requirement for the Treasury to report on the impact of the reforms, will strengthen the existing incentive on firms to meet their public commitments.
I know, however, that some noble Lords still have concerns that insurers will not be fully held to account. In this context, I note that the FCA has a wider goal to ensure that the insurance markets deliver competitive and fair prices for consumers, and it is able to take action in this context. As a recent example, separate from the Bill, the FCA has published a series of documents relating to general insurance pricing practices, expressing concern that within the general insurance space some practices may have the potential to cause harm to consumers. It is launching further work to consider whether insurance pricing is fair and, if it is not, what action could be taken. The FCA has been clear that it will consider additional potential action where there is evidence that pricing practices are unfair.
The FCA also wrote to all insurance CEOs reiterating the importance of firms implementing appropriate pricing strategies and stating clearly that all firms are required to assess whether their pricing practices result in their customers being treated fairly; and that firms should also be able to demonstrate how they have reached this conclusion. More generally, the FCA has the continuing ability to employ the existing range of regulatory tools at its disposal in cases where firms are not treating customers fairly. For example, this could potentially include cases where firms went back on public commitments that had become part of policyholder expectations and were relied upon by consumers, to their detriment.
This amendment was developed to address the concerns that were raised in this House. I know that the proposals raised by noble Lords were carefully considered in developing the legislation and working out the necessary requirements to follow in regulations. In order to give sufficient certainty to insurers who will have to comply with the new rules, Clause 11 describes the type of requirements that they will face in a fairly detailed way. This is to reduce the legal risk of objection to the way in which the Treasury introduced the regulations and the FCA required compliance. However, the legislation deliberately leaves some flexibility to refine and develop the precise nature of the new requirements in an appropriate way.
For example, the legislation provides for the regulations to require that certain information is audited. As set out in the policy note published on 6 September, the Government expect that that information might include the total figure representing the claims cost for each year beginning 1 April; mean claims costs per year for comparative policies; total premium income per year for comparative policies; and mean premium income per year. However, the Government also recognise that some information might not be suitable for audit and that alternative means of verification will be necessary. This might be because by its nature counterfactual information cannot be audited and must instead be otherwise assured; or because in some cases for smaller firms the burden of providing audited information might genuinely be disproportionate.
The legislation enables certain exemptions to be given for insurers where the new requirements are not appropriate in this way. The policy note explains that the regulations will provide more detail about insurance classes in scope and will set minimum thresholds in relation to the level of personal lines activity and policies sold in England and Wales, which will minimise the risk that extremely small or specialist insurers will face a genuinely disproportionate compliance burden. Personal lines insurers that do not meet the threshold criteria will need to provide a short statement to the FCA confirming that they do not fall in scope of the reporting requirements. New entrants to the market will also be required to provide this information.
Clause 11 provides that the exact requirements on insurers will be set out in secondary legislation laid by Her Majesty’s Treasury. I can confirm that, before regulations are brought specifying the exact requirements that insurers will face, the Treasury will carry out a further consultation exercise, including sharing draft regulations with all interested parties. This will ensure that the new rules work effectively and do not place disproportionate burdens on insurers. The regulations will be subject to the affirmative procedure, meaning that the details of the regulations will be debated in both Houses.
The Civil Liability Bill is an important part of wider work to bring down the cost of living for ordinary consumers. This amendment will ensure that insurers are held to account for their public commitment. It will require firms to demonstrate how any savings from the Bill have benefited their customers.
Finally, Amendment 6 removes the privilege amendment inserted at Third Reading in the House of Lords. The removal of this amendment by the House of Commons makes the imposition of any charge resulting from the Bill its own act.
Before I conclude, I will note that I received a letter from the noble Lords, Lord Monks and Lord Bassam, and the noble Baroness, Lady Primarolo, asking three questions with regard to their understanding of the Bill as it entered Third Reading and Report in your Lordships’ House. First, they asked what amendments had been made to the Bill; secondly, what changes had been made by the Government in respect of the Bill and the associated changes and who they will apply to; and, thirdly, when the introduction is anticipated of the statutory instrument regarding the small claims track limit. I hope that I addressed the first of those questions in my opening remarks, so I will turn to the second and third questions.
While increases to the small claims limit are part of the Government’s overall reform programme, they are of course not included in the Civil Liability Bill, which, as noble Lords will know, is focused on making changes to the whiplash claims process and to the way in which the personal injury discount rate is set. The provisions of Part 1 cover all whiplash injuries, irrespective of whether the injured party was driving as part of their work or on their way to or from a place of work. We have made it clear that vulnerable road users—that is, cyclists, motorcyclists, horse riders and pedestrians—were never included in the Bill, and they will also be excluded from the rise in the small claims track that will support the wider reforms.
On the third question posed by noble Lords, the Government will be making changes to the small claims track limit through the Civil Procedure Rules in the normal way. We will work with the Civil Procedure Rule Committee to ensure that this change and the wider rule changes to support the reform programme are made in sufficient time to enable implementation in April 2020. We anticipate that the statutory instrument making the changes will be brought forward in the second half of 2019.
I hope that noble Lords will be content to accept the amendments from the House of Commons, and I beg to move.
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”.
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.
I raise a narrower point than that of the noble Lord, Lord Sharkey. I refer to the Government’s Amendment 1 where, notwithstanding the heavyweight legal artillery from the noble and learned Lords, Lord Judge and Lord Hope of Craighead, I would like to probe the thinking a little further. What is proposed seems undesirable in a number of aspects, not least of which is that it may put the Lord Chief Justice into a conflicted and undesirable position.
Clause 3, to which the amendment applies, is entitled “Damages for whiplash injuries”. The House will be aware that because of the difficulty of diagnosis—as we have heard from my noble and learned friend—whiplash has provided easy pickings for the fraudulent over several years; in the vernacular of our early debates, the phrase was “cash for trash”. Millions of motorists’ insurance premiums have been unnecessarily increased. The Government—sensibly, in my view—introduced the blanket figure to cover all injuries with a duration of less than two years. That was discussed extensively and amended during the passage of the Bill here and in the other place. It was not, and is not, an uncontroversial policy decision. It remains an issue about which different parts of the House and different political parties have strong views.
Clause 3 is about money and the compensation payable under the whiplash tariff in different circumstances. I invite my noble and learned friend and the House to look at subsections (1) to (5). In each of those, the key word is “amount”—the amount of damages due and payable in different circumstances. The clause provides that these amounts are determined and laid out in regulations by the Lord Chancellor. Under this amendment, as my noble and learned friend pointed out, there would be another hoop to go through, in that the Lord Chancellor would have to consult the Lord Chief Justice before making regulations under the clause. The discussion in the House of Commons was pretty threadbare. I am concerned that the Lord Chief Justice may find himself dragged into policy areas which are not to his advantage. The clause is about money, not process. I ask my noble and learned friend to consider the options available to the Lord Chief Justice when the Lord Chancellor turns up at his office and presents the new tariff. As far as I can see, he has only two. Either he can accept without demur, or he can say that he thinks the proposed new tariff is too high or too low. If he does the latter, on what grounds would he make that judgment? What expertise does a judicial figure, the Lord Chief Justice, bring to the determination of these monetary figures? What expertise is available to him that was not available to the Lord Chancellor in making his original determination?
I make it clear that this is not an attack on the Lord Chief Justice. Indeed, it is intended to draw attention to the difficult position that future Lord Chief Justices may find themselves in as a result of this amendment. They would either have to act as a cipher and simply tick a box, or require amendments to figures that will remain politically highly charged. That runs the risk of the role becoming politically tainted, and further involving the Lord Chief Justice in the determination of matters on which the courts and justice system would later, no doubt, have to adjudicate.
It is not desirable for the Lord Chief Justice of the United Kingdom to be seen either as a cipher or as a participant in political processes. I look forward to hearing from my noble and learned friend why I have so gravely misjudged the situation.
My Lords, I declare an interest as a non-executive director of Thompsons, a leading personal injury firm. I have two or three questions for the Minister, particularly on Amendment 1. I thank him for the reply we received to the letter he referred to.
The House of Lords Regulatory Reform Committee advised that the key measures in this Bill, including the levels of compensation for claimants under the tariff scheme, should feature in primary legislation, not secondary. The Constitution Committee said that Ministers should follow this advice unless there were clear and compelling reasons not to. There seems to be a trend for the Government to seek wide delegated powers that permit the determination and implementation of policy. The Constitution Committee warned that the restraint shown by noble Lords towards secondary legislation might not be sustained—a serious warning to the Government that, if this trend continues, secondary legislation might be much more difficult to accomplish. I will be interested to hear the Minister’s comments on that.
Secondly, given that the employer liability clauses will not be dealt with through the new online portal, which is being reserved for whiplash claims, can the Minister confirm that the courts will be able to cope with what will undoubtedly be an increased number of claims without the presence of expert legal representation? It is estimated that they could increase from 5% to 30% of the total number of cases. Can the courts manage that extra responsibility?
Finally, what is meant by “in the long term”? This relates to paragraph 5.66 of the whiplash impact assessment accompanying the Bill, where the Government state that, taking into account adjustments to pre-action protocols, they consider that
“in the long term the courts would operate at cost recovery”.
I would be grateful for an explanation of what cost recovery means in this context.
My Lords, I shall speak to Commons Amendment 3 and shall make a general point about all the amendments in the round. I declare my interests as set out in the register—in particular, those in respect of the insurance industry. I would very much like to add my thanks to the Minister, the noble Baroness, Lady Vere, and the Bill team, who have been very courteous and warm as they have engaged with me, particularly on Amendment 3.
We spent a lot of time discussing the area covered by Amendment 3 in Committee and on Report, and even slightly at Third Reading. The amendments suggested in this House—there were quite a few of them—had a common theme: they were short and clear, and they instructed the FCA to act, as it were, as the scorer and to work out how it would ascertain whether insurers had in fact handed the money back to customers.
The section of the policy note, which the Minister referred to, entitled “Context and overall approach to amendment” refers to an intent to:
“Hold insurers to account in a way that is sufficiently rigorous”,
“Avoid intervening in an already competitive market or placing disproportionate burdens on insurers or regulators”.
I am very grateful to the Minister for confirming that those should be the guiding principles for the FCA as it begins to consider the best way to discharge this duty. I find the three pages of new Clause 11 pretty difficult and they are potentially extremely onerous for insurers. I note that, depending on how you construe new subsection (2), insurers might also have to report on every single comprehensive household policy they have, because injury cover is possibly included in that. I could make other points on that too.
We now know that this amendment was drafted by a committee full of highly intelligent people, including insurers, obviously very intelligent lawyers, accountants and officials. Of course, we all know that when you put a committee together, you get a camel, and I am afraid that it is a bit of a camel. However, I say again that I am very grateful to the Minister for confirming that the policy note will trump what is in the legislation, as that is important.
That leads on to my general point about the Bill. In Committee I referred to the 2016-17 annual report of NHS Resolution. It stated that moving the discount rate from +2.5% to -0.75% meant that the cost of medical negligence in the UK every year would rise by an extra £1.2 billion. That means that every day £3.3 million is not being spent on the NHS front line. If the personal injury discount rate, which is in Part 2 of the Bill, went up—perhaps not all the way up to 2.5% but maybe to 1%, which is currently the case in France—that would release around £1.75 million a day to the front line of the NHS. In a nutshell, the quicker this Bill passes, the better. My one question for the Minister is whether he agrees with that point.
My Lords, I declare my interests, having now been chair of the British Insurance Brokers’ Association for the past five years and for the last 50 years having been a partner in the global legal firm DAC Beachcroft.
We need to remind ourselves that it is almost three years to the day that the then Chancellor of the Exchequer announced the coalition Government’s plans to reform whiplash claims. What a long journey it has been. In welcoming the amendments made in the other place, I join the noble Earl in impressing on all noble Lords the need to avoid any additional delay. The figures on the costs to the National Health Service just given by the noble Earl are stark and revealing, and we need to speed up.
I congratulate the noble Lord, Lord Sharkey, on the way in which he proposed that we should speed up the review process of looking at the discount rate, which is a vitally important part of the Bill. We also removed the prospect of any delay between Royal Assent and the start of the review timetable. I trust that my noble friend the Minister will understand when I stress again how imperative it is that we proceed to Royal Assent without any further delay. There is now no need to return this Bill to the Commons and no need to let any more time pass before Royal Assent. Further, there is no need to further delay the start of the review and the return to a more realistic, viable and normal discount rate.
I welcome the new clause on reporting, although I can understand how, as a non-lawyer, the noble Lord might think it complicated. But it covers the full picture exceedingly well. I congratulate all those both in Government and in the insurance industry who worked so hard on the wording over the summer. I know that it is not perfect, but it strikes an appropriate and judicious balance. It introduces the necessary rigour into reporting, but at the same time it is workable for those who have to provide the data.
One vital element to the industry—passing on cost savings to consumers—has been slightly forgotten in the heat of the debate at earlier stages. For insurers to be able to pass on the savings, there must first be savings. That is the primary purpose of this Bill. Only if the Bill is implemented, as it is now with a tariff of low damages for whiplash claims up to two years in duration and the other measures planned alongside this, including raising the small claims limit to £5,000, will there be any prospect at all of savings being realised and passed on to consumers. That will be in the best interests of all consumers and all citizens.
I add my praise to the Minister and the noble Baroness for their diligence and patience and for making themselves so readily available and accessible to all and any Members of this House to discuss various matters of concern. The Minister has made this a better Bill. Now let us speed it on its way.
My Lords, in view of everything that has been said about the Minister, perhaps he does not need any help from me in addressing the concerns expressed by the noble Lord, Lord Hodgson, but I will offer him some comfort. Many people will want to make a contribution to the discussion with which the noble Lord, Lord Hodgson, has been concerned. They may not all have the same interest as the judiciary has in seeing that there is a fair balance between the way in which the whiplash injuries damages are to be assessed and the way that all other injuries are assessed—the process of assessing damages as it develops over the years.
I specifically asked that we should not have the concurrence of the Lord Chief Justice. We simply asked that he should be consulted. When he is consulted, like everyone else who has been consulted, he will be someone making a contribution to the final decision of the Lord Chancellor. As he will be merely consulted and not asked to concur, there is no danger that my successor many years down the line will find himself at the wrong end of a claim.
My Lords, I refer to my interest as an unpaid consultant with my old firm. I begin somewhat unusually by congratulating the Minister on having improved a pretty flawed Bill since it left us. I assume that he has played a significant part in that. In particular, I strongly endorse the provisions of Amendment 1, which are an improvement on the original wording. However, we would still have preferred the retention of the existing system which allows judicial discretion on the level of compensation to be awarded based on judicial guidelines. To answer the noble Lord, Lord Hodgson, that is how the system operates and there seems to be no good reason why the assessment of damages for this kind of injury should be different in those terms from any other form of injury.
Of course, we also continue to be opposed to the increase in the small claims limit by an amount higher than inflation, in accordance with the review carried out by Lord Justice Jackson several years ago of civil litigation costs. In fact, the increase is something like 100%, although I take the noble and learned Lord’s point that that is not strictly within the scope of this Bill.
The Justice Select Committee warned that,
“increasing the small claims limit for PI creates significant access to justice concerns”.
The Government’s plans to increase the small claims limit will mean that more cases are allocated to the small claims track. That will leave tens of thousands of working people priced out of getting proper legal representation. These measures are a further gift to insurance companies which are already experiencing increased profits at the expense of people injured through no fault of their own.
What assessment have the Government made of the impact of the changes to the operation of the courts, given that increasingly claimants will be unrepresented? Within the last fortnight, the Permanent Secretary at the Ministry of Justice has told the Justice Select Committee that two of the main spending assumptions were fundamentally “unrealistic” and that even the Treasury recognised that the department was under “considerable strain”. In these circumstances, how confident is the Minister about the ability of the courts to deal with an increase in unrepresented claimants from 5% to 30%, as predicted in the whiplash impact assessment? That of course relates only to that particular area; there will be another shortfall in relation to other claims. How long do they anticipate will be the “long term” envisaged before the courts operate at cost recovery level, as suggested in the whiplash impact assessment? To be clear, whiplash impact for this purpose is on the system, not on the unfortunate claimant.
It is estimated that insurers will gain £1.3 billion a year. I hope that the noble and learned Lord’s confidence that the industry will ensure that those savings are passed on to policyholders will be proved correct. Why will it be six years before the Treasury reports to Parliament on the savings accrued to policyholders, as apparently will be the case? It seems an inordinately long time to assess the impact of this provision. Further, is it not ironic that the Government, who make so much of the need to protect policyholders from the impact of exaggerated or fraudulent claims, have themselves increased insurance premium tax four times in eight years, thereby currently collecting £2.6 billion a year more from the people they purport to be helping through this Bill?
While the commitment given at Third Reading in the Commons that vulnerable road users will be exempt from the changes is welcome, why are children and people injured at work not included in the exemption? Extending the change to those two groups would seem to be a reasonable move.
By sheer coincidence, today sees the publication of the report of the Constitution Committee. It is highly critical of the Government’s increasing reliance on secondary legislation. The committee supported the views of the Delegated Powers and Regulatory Reform Committee earlier this year that key measures should be included in the Bill and not left to secondary legislation. Also, most tellingly, it said that judges, not the Lord Chancellor, should set the new tariff and that the Lord Chancellor should not be granting powers to make provision for damages relating to minor psychological injury. This accords with amendments debated during the passage of the Bill through this House but not enacted.
I hope that a review of this measure will provide an opportunity to return to this issue and adopt that approach in due course. I repeat that the Bill comes back to us in better condition than it was, but I remain convinced that it is not in as good condition as it should be.
I am obliged to the noble Lord, Lord Beecham, for acknowledging that we have at least achieved a curate’s egg, if nothing more.
The Bill makes important changes to our personal injury compensation system; it makes that system fairer, more certain and more sustainable in future for claimants, defendants, motorists and the taxpayer. That builds on our wider reforms to cut the cost of civil justice claims and strengthen the regulation of claims management companies, which play such a big part in this. The first part of the Bill will deliver a key manifesto pledge. It will support the consumer by bringing down the cost of living through a crackdown on exaggerated and fraudulent whiplash claims that lead to higher insurance costs. The second part of the Bill will provide a fairer method for setting the personal injury discount rate and reviewing it so that it does not remain at one level, as it did for 16 years.
I am grateful for noble Lords’ observations and careful scrutiny of the Bill. I want to touch on one or two of their points. The noble Lord, Lord Sharkey, commented on the complexity of the approach taken on Clause 11. That approach was carefully crafted after consultation with interested parties, including the FCA, to ensure that it is as effective as possible. At the end of the day, the Government’s approach has been determined by the need for a rigorous and proportionate regime for insurers as far as savings are concerned. We have to remember that the FCA is an independent body. Clearly, we cannot confirm exact FCA action in respect of these matters but we assure the House that it will take very seriously any case where an insurer does not treat customers fairly. That could include a public commitment not being met if that formed part of a policyholder’s or consumer’s expectations.
The Government have taken a careful and considered approach to what is sometimes termed “naming and shaming”, particularly with regard to the provisions in Article 6 of the European Convention on Human Rights. There are circumstances in which the FCA may decide publicly to censure a firm, but that would typically follow a detailed investigation. The idea of somehow naming and shaming a firm before such an investigation could raise questions about convention rights under Article 6. I suggest that we have taken a considered approach to this but, ultimately, those outliers—if I can call them that—who might seek to abuse the system will be open to censure, potentially publicly, by the FCA in due course.
In the context of the point made by the noble Lord, Lord Hodgson, I readily adopt the observations of the noble and learned Lord, Lord Judge. At the end of the day, consultation with the Lord Chief Justice will allow the judiciary some input into, or comment on, the setting of the tariff of damages against the background of its knowledge of the general level of damages awarded for personal injury in diverse cases. One would hope that this would ensure no material divergence in levels of damages as far as that is concerned.
The noble Lord, Lord Monks, raised a number of questions. Regarding Amendment 1, the primary legislation approach to setting the tariff is not considered appropriate because it should be amenable to review and flexibility. Setting it in stone would not allow for that. Regarding the question of employers’ liability and employers’ liability clauses, we consider that the courts are equipped to cope with such claims. On cost recovery, referred to in the impact assessment at paragraph 5.66, I note that the aim is ultimately to try to achieve cost neutrality so far as the court process is concerned, but I acknowledge that that is a long-term aim.
On that point, I touch upon the observations of the noble Lord, Lord Beecham. Regarding access to the courts, we are introducing a digital portal for these whiplash-type injuries, which will be designed to be accessible for those without legal representation. It will lead them into the prospect of alternative dispute resolution of their claim in respect of the merits and quantum. That system is being developed by the MIB and will be stress tested. As I indicated, we would expect it to be available for operation by April 2020.
We debated the question of excluding others such as vulnerable road users before, and I will not revisit the point. We have taken a clear view on the scope of these requirements with regard to whiplash, and that is where we are.
On the matter of a six-year period for review, it will be necessary to collate data from at least three years so that we can produce a comprehensive review of costs and savings. Therefore, we do not consider the period for the report to be excessive in that context.
The noble Earl, Lord Kinnoull, alluded to Clause 11 and what he saw as the onerous obligations on insurers. It is only appropriate that obligations be placed on insurers regarding this matter when potentially very significant savings will be achieved. We make no apology for that, but I observe that these provisions were developed after consultation with insurers and the FCA. However, I readily acknowledge the point that he made about the cost to, among others, NHS Resolution regarding the present discount rate. It seems unfortunate that we have moved from a regime where the discount rate remained at 2.5% for 16 years, only to be subject to what might be termed a cliff-edge change due to the long period that it remained at that level, and was brought down to minus 0.75%. We intend to bring Part 2 into effect at Royal Assent with the two time limits—debated before—of 90 days and 140 days, so that this matter can be brought under control sooner rather than later.
With those observations, I hope the House will accept that the Bill will work to improve the present position. We believe that we now have a much stronger Bill that will ensure that consumers see the benefits that arise from these reforms.