HOUSE OF COMMONS
Fourth Standing Committee on Statutory Instruments, &c.
DRAFT INSURANCE BROKERS (REGISTRATION) ACT 1977 (AMENDMENT) ORDER 1995
Thursday 2 November 1995
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The Committee consisted of the following Members:
Chairman: Mrs. Anne Winterton
Batiste, Mr. Spencer (Elmet)
Bell, Mr. Stuart (Middlesbrough)
Bottomley, Mr. Peter (Eltham)
Bruce, Mr. Malcolm (Gordon)
Burden, Mr. Richard (Birmingham, Northfield)
Campbell, Mr. Ronnie (Blyth Valley)
Church, Ms Judith (Dagenham)
Cunningham, Mr. Jim (Coventry, South-East)
Dykes, Mr. Hugh (Harrow East)
Elletson, Mr. Harold (Blackpool, North)
Evans, Mr. Jonathan (Parliamentary Under-Secretary of State for Competition and Consumer Affairs)
Forman, Mr. Nigel (Carshalton and Wallington)
Fox, Dr. Liam (Woodspring)
Hampson, Dr. Keith (Leeds, North-West)
Lord, Mr. Michael (Suffolk, Central)
MacShane, Mr. Denis (Rotherham)
Robathan, Mr. Andrew (Blaby)
Simpson, Mr. Alan (Nottingham, South)
Mr. M. Hennessy, Committee Clerk2 3 Fourth Standing Committee on Statutory Instruments, &c. Thursday 2 November 1995
[MRS. ANN WINTERTON in the Chair]
The Parliamentary Under-Secretary of State for Competition and Consumer Affairs (Mr. Jonathan Evans): I beg to move, That the Committee has considered the draft Insurance Brokers (Registration) Act 1977 (Amendment) Order 1995. Before dealing with that matter, may I say what a great pleasure it is to address, I think for the first time, a Committee under your Chairmanship, Mrs. Winterton. It is also a great pleasure again to face across the Room the hon. Member for Middlesbrough (Mr. Bell), who speaks for the Opposition on these matters. It would be remiss of me not to say how delighted I was to find that when the new trade and industry team was announced by the Leader of the Opposition, the hon. Gentleman had moved to his rightful place almost at the top of the list. The Labour party is following its tradition in trade and industry matters of ensuring that in a team of eight, there is at least one person who knows what he is talking about. The Insurance Brokers Registration Council proposes to introduce compulsory qualification by examination. That would require an amendment to section 3 of the Insurance Brokers (Registration) Act 1977, which currently allows insurance brokers to be registered on the basis of experience alone. Perhaps I should explain why the Government agree with the council that that change would be in the interests of the profession and its clients. As the Committee will know, compulsory examinations are a common feature of controlling access to professions on which the public rely for important advice and services. The council is committed to raising the professional standards of insurance brokers and believes that the time has come to introduce compulsory examinations in this field a well, but it is important to stress that that is an evolutionary, not a revolutionary, step. The council has for some time encouraged insurance brokers to obtain voluntarily the associateship of the Chartered Insurance Institute. About one third of the profession now hold that qualification. The council has offered guidance to all insurance brokers on what constitutes professional good conduct in relation to continuing professional education and now proposes, if the order is approved, that new entrants to the insurance broking profession be required from 1 January 1997 to have passed four specified subjects of the associateship of the Chartered Insurance Institute. The council further proposes as a second stage from 1 January 2000 that new entrants to the profession be required to obtain the full associateship of the Chartered Insurance Institute. 4 I should explain before I go on that alternatives to CII qualifications will also be considered. However, the Chartered Insurance Institute has long been the traditional provider of qualifications for the insurance sector, and so its qualifications are the model for the council's proposals. I should also, for the sake of completeness, make a few points on the detail of the council's proposals. The first is that the order provides for one exception to the requirement for compulsory exam qualifications from new entrants to the insurance broking profession. The exception derives from the 1976 insurance intermediaries directive, which provides that where one member state admits entry to the profession on the basis of experience alone then, so long as that experience matches the conditions laid down in the directive, other member states must accept the qualification even if they themselves have a requirement for previous training. The effect is that we cannot impose our own compulsory examinations on European Economic Area brokers to whom the directive applies. It is worth noting, however, that the council does not expect that there will be many applicants under that provision. In the past 18 years, there have been only five such EEA applicants. A second point is that at the second stage of the council's proposals, from 1 January 2000, new entrants will be required to hold a qualification that can be used under the European Community mutual recognition of professional qualifications directive to gain entry to the activity of insurance intermediary in other member states where such qualifications are required. An amendment to the United Kingdom regulations implementing the directive will be needed to take account of the Insurance Brokers Registration Council's role as a designated authority. The order comes into force on 1 January 1997. It needs to be made now, however, to give prospective applicants to the profession the time and opportunity to obtain the required examination passes. I believe that the council's proposals offer significant benefits to consumers. Consumers increasingly expect better standards of knowledge from insurance sellers. They expect those standards to be required by regulators such as the Insurance Brokers Registration Council. The increasing sophistication of insurance products means that insurance brokers need to be more knowledgeable in order to serve their customers properly. It is worth noting that most sellers of life insurance are already required under the Financial Services Act 1986 to demonstrate their knowledge through qualification by examination. The proposals also reflect developments in the European Community. The Commission issued a recommendation in 1991 which, among other things, suggested that member states should set minimum knowledge entry requirements. The council's proposals clearly demonstrate our compliance with the spirit of the recommendation. We are, of course, keen to see that legislation strikes the right balance between consumer protection and burdens on business. A detailed cost of compliance assessment has been prepared in consultation with the trade bodies and a number of individual insurance broking companies. It is worth highlighting again that the council's proposals apply only to new entrants to the profession; the proposals are not retrospective. Nobody already in the business will face any extra cost. In addition, the proposals apply only to those who wish to use the style, "insurance broker". Those 5 who act as insurance intermediaries under another style will not be affected by the council's proposals. The Office of Fair Trading has been consulted. Its conclusion is that the proposals are not anti-competitive and that the costs and standards of the examination do not constitute an unreasonable barrier to entry. I am satisfied, on the basis of this work, that the benefits to the consumer far outweigh the burdens that they place on business. The council's proposals come at an appropriate stage in the development of the insurance broking profession. More importantly, they also improve consumer protection in a way that reflects market developments, without imposing unnecessary burdens on business. I commend the order to the Committee.
Mr. Stuart Bell (Middlesbrough): I endorse the Minister's comments; it is the first time that we have served on the same Committee under your chairmanship, Mrs. Winterton. I am grateful for the Minister's comments about my elevation, such as it is—and I say that as I glance at the serried ranks behind me. Many years ago, Lord Jenkins said that flattery was a fine thing, so long as one did not breathe in. I shall not breathe in too deeply. Since we are in a friendly mood, and not too far into the debate, I shall mention the hon. Member for Ryedale (Mr. Greenway), who is a member of the Insurance Brokers Registration Council, and who recently had an operation, from which he is recovering. He follows insurance matters closely, and has been re-elected to the IBRC. His majority continues to increase, and perhaps that is an augury for him in his constituency. The hon. Gentleman said that he would probably return to Parliament in a week or two. We should send him the regards of the Committee. The hon. Member for Ryedale has suggested that insurance intermediaries should also be registered with the IBRC. However, we do not need to pursue that matter today. Although there was agreement between the Government and the Opposition about the order, the Minister took the Committee through the measure. I am grateful to him for that, because it was an appropriate way in which to deal with the Order. I was pleased to be reminded of the 197479 Labour Government, who introduced the original Insurance Brokers Registration Act in 1977. The Act was passed by only a small majority, but the Government braved the waves and the storm to place it on the statute book. As the Minister has said, the entire basis of the change is to take away from those who want to become brokers the right to do so on the back of a demonstration of relevant experience. I agree that although in the past such experience might have been sufficient as a criterion, in an age of complex financial dealings and consumerism, in which all facts should be on the table and there should be absolute reliability in financial matters, including insurance broking, there should now be an appropriate examination. The Minister referred to qualifications other than those of the Chartered Insurance Institute. It would be useful at some stage—not today—to know how and when national vocational qualifications would become acceptable. That is a small point that we may take up with the institute later on. I welcome the fact that the order is not retrospective. The House and its Committees have powers or retrospection, but it would not have been appropriate to use them in this 6 case. The change should not touch on the careers of those who have already been registered under the former system on the basis of relevant experience. I am glad that the hon. Member for Harrow, East (Mr. Dykes) is with us today, as he will understand my next point. The former system of relevant experience is connected with the French style of profession liberale, which allows one to call oneself a conseil juridique on the basis of experience. That system has worked well, but statutory requirements are now being introduced in France as well as here. The Minister touched on the fact that the statutory requirement affects only the right to use the style "insurance broker". It is still open to practitioners to pursue what is essentially the same business under another style, without registration. We understand the timing of the order, to allow the examiners and those who wish to sit the examinations to begin preparations. We also welcome the exemption for certain insurance intermediaries from other European Economic Area states. The Minister mentioned that five had applied or been accepted on that basis. We are part of the great European Union and the great single market, and interchangeability in professions is an element of the treaty of Rome that goes back as far as 1957. The hon. Member for Harrow, East will appreciate that European harmony is desirable, even in less conspicuous areas such as insurance broking. On the basis of the Minister's remarks and our own examination of the order, we also commend it to the Committee.
Mr. Jonathan Evans: May I respond to two of the points made by the hon. Member for Middlesbrough? As to which qualifications may in due course be considered equivalent to those of the Chartered Insurance Institute, I understand that the council is willing to consider alternatives and, as the hon. Gentleman mentioned, NVQs may play some part. At this stage, it is anticipated that certain university qualifications, and other qualifications of that nature may be regarded as equivalent. The Insurance Brokers Registration Council has said that if the order is made, it will start to consider in detail syllabuses and other qualifications to ensure that there is mutuality in the way in which the qualification criteria work. The hon. Gentleman also mentioned EEA applicants. I made the point that there had been five such cases in the past 18 years, not to denigrate the idea but to demonstrate that the number of those who would not be required to show the examination qualification was limited. The hon. Gentleman said that the number could increase because of our increasing involvement in the European Union. We do not expect that that will be the case. I gave the figure to the Committee because we anticipate that the number of applicants is likely to remain constant, partly because the change that the Committee is considering today is taking place in the European Union, where certain levels of examination and qualification are increasingly required. The order improves consumer protection. Insurance products now are highly sophisticated and the industry accepts that consumers expect insurance brokers to be qualified to give advice. New applicants to the profession should have formal qualifications as a means of meeting consumers' expectations. I commend the order to the Committee.7
Question put and agreed to.
Resolved, That the Committee has considered the draft Insurance Brokers (Registration) Act 1977 (Amendment) Order 1995.8
Committee rose at fifteen minutes to Eleven o'clock.
THE FOLLOWING MEMBERS ATTENDED THE COMMITTEE:
Winterton, Mrs. Ann (Chairman)
Evans, Mr. Jonathan
Fox, Dr. Liam