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.
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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.