Parliamentary Connections

The government has declared its legislative hand for the next session months ahead of the usual autumn Queen's Speech. Largely dismissed by commentators as a gimmick to cover up the electoral disasters swirling about its head, the programme has plenty of potential interest for the financial services sector.
Most eyes instantly alighted on the Banking Reform Bill which will attempt to clear up the huge regulatory confusion and scope for buck-passing that dominated the early weeks of the Northern Rock collapse. It will also, controversially, try to put into law the enhanced compensation arrangements for bank customers should another bank go under. These were racked up to 100% for deposits up to £35,000 last October to stop the run on Northern Rock but like most panic measures they are devoid of logic and consistency. There is no reason why bank deposits should be a special case for enhanced compensation: they are no more or less important to people than their pensions, life assurance and other forms of saving. If the banks want special arrangements, they should fund them themselves, something they have been reluctant to do, expecting the public purse to bail out commercial incompetence in their sector. Plenty of rows ahead on that one.
The insurance industry was predictably pleased about the pledge to follow up the recommendations of the Pitt review on the response to last year's serious flooding. Any backsliding on this would have attracted alot of criticism.
The Welfare reform Bill will also be worth keeping any eye on as the government has said this will extend medical assessments and the development of personalised return to work programmes which should give a further boost to the rehabilitation sector.
One of the biggest bust-ups, however, will probably be over something that wasn't mentioned by Gordon Brown: pleural plaques. Since the House of Lords ruled that pleural plaques cannot give rise to a compensation claim, the trade unions and claimant lawyers have been up in arms. Their arguments are very emotional and based on a cynical exploitation of people who have pleural plaques. They stoke up irrational fears about other asbestos related diseases and then try to claim for emotional distress. Expect them to target the Law Reform, Victims and Witnesses Bill for a trade union sponsored amendment to reverse the House of Lords' ruling. The industry needs to be on its guard.

Reform of insurance contract law is long overdue. Relying on the Marine Insurance Act 1906 as the legal basis of all modern day insurance contracts - life and general - is just plain daft. It has long since ceased to be fit for purpose and modern day practice ignores it. All of this is accepted by the insurance industry.
So, what happens when there is a chance of reforming it and bringing at least some of it into the 21st century? Answer: the industry, at least the form of the Association of British Insurers, spurns the opportunity. Surprised? shocked? I certainly was and so were members of the All Party Group when they heard the ABI's reaction to the Law Commission proposals this morning.
The Law Commission's proposals are hardly a surprise and seem a very reasonable response to the weight of evidence it had from the industry and consumers.
What is proposed is a sensible modification of the utmost good faith principles for personal lines insurance. The Commission wants to remove any remaining sense of obligation that might linger for consumers to answer questions that haven't been asked. It then wants claims to be paid to "honest and reasonable" consumers even when a mistake has been made, that mistake itself also being subject to the "honest and reasonable" test. No more hiding behind irrelevant or minor non-disclosure.
If the consumer has been "careless" (again, the Commission's word), then the claim should be treated as if the correct information had been given at the policy inception; and, if the claimant, is dishonest, the claim should be declined.
Many would say this regime should provide a welcome degree of certainty based on no more than best current practice in the market. Instead, the ABI pleaded that it should be left the a combination of the Financial Services Authority (and its Treating Customers Fairly regime) and the Financial Ombudsman Service. It is hard to think of a combination that would generate more uncertainty and retrospection than a fluid regulatory regime.
This reform of insurance contract law is suddenly in danger of becoming a huge lost opportunity for the industry to align itself with the interests of consumers to the benefit of both. An urgent rethink is required.