In our 22 October bulletin we reported on the Enterprise Bill, which includes proposals to amend the Insurance Act 2015 to create a right for policyholders to claim damages for late payment of claims. An attempt to convince the government to carve out reinsurance and ìlarge risksî has failed during the passage of the Bill through the Committee stage in the House of Lords.
The Earl of Kinnoull (Charles Hay, who works for Hiscox) proposed an amendment developed in consultation with the LMA and the IUA, which would exempt reinsurance and ìlarge risksî from the scope of the claims payment provisions. The proposed definition of ìlarge risksî was that contained in Article 13(27) of Solvency II: broadly, business written for policyholders who satisfy two of the following three criteria - a balance-sheet total of Ä6.2 million, a net turnover of Ä12.8 million or more than 250 employees.
Lord Kinnoull argued that the introduction of the Bill without amendments could lead to an ìunreasonable delayî cause of action being introduced as an extra element of many disputed claims, leading in turn toìextra claims costs and a lot of aggravation for the insurers concernedî. The fear of the industry bodies was that this could divert capital away from London to other world centres. Conservative Peer Lord Flight was more bullish in his criticism of government policy saying ìI would not want to be the Minister who had pushed through the legislation that wrecked Londonís large premium insurance businessî. The international insurance market was described as ìself-policingî and ìwell-oiledî when it came to the need for prompt payment of claims.
The debate shed some light on how the late payment of claims legislation came to be excluded from the Insurance Act: Baroness Noakes, who was a member of the Special Public Bill Committee which guided the Insurance Bill through Parliament, spoke of having been ìleaned onî by the Conservative Party not to press the issue and suggested that the government had deliberately scheduled the final debate for a day when she was not able to be in the House. She found this very disappointing as, other than the LMA and the IUA, she believed that the weight of opinion in the insurance industry was in favour of introducing late payment legislation.
Baroness Noakes accepted that it was probably appropriate to exclude reinsurance but argued that late payment of a claim could mean the difference between survival and failure for a medium-sized company.
Baroness Neville-Rolfe, for the government, said that expenses would increase and the placement process would be severely slowed down if underwriters had to identify which side of the ìcomplex and arbitraryî ìlarge-risksî boundary a prospective policyholder fell before writing the business. She described the proposed carve-outs as ìneither necessary nor appropriateî, pointing out that the clauses in question were the product of a lengthy Law Commission project involving years of engagement with the insurance industry and reminded the Committee that it would still be possible to contract out of consequential losses. She also commented that the proposed Solvency II definition would exclude many medium-sized businesses, the protection of which was precisely the target of the Bill as a whole. She rejected any suggestion that the London insurance market would be harmed by the new provisions and argued that, on the contrary, there was a gap in the legal regime that needed to be rectified and that it was in the UKís interest that the London Market was seen to be a good place to contract and a place where customers were paid on time.
With no prospect of the amendments being passed, the Earl of Kinnoull withdrew them. However he indicated that he would be putting forward further proposals in relation to the reinsurance carve-out. This is likely to be at the report stage, which is scheduled to begin on 25 November 2015.
The tenor of this debate suggests that the government has little time for any proposals which will increase the complexity of its late payment legislation. Having seemingly decided to disregard the controversy which led to exclusion of the clauses from the Insurance Act and reintroduce it via the back door they seem now to be set on a one-size-fits all approach justified by an overriding concern for businesses other than insurance companies. However it may still be possible to protect the reinsurance market from the ìaggravationî predicted by the LMA and IUA. We will follow with interest and report on developments.