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It is worth noting that individuals who find that they cannot claim on their group policy due to exclusions such as a pre-existing medical condition would most likely also have had an exclusion applied if they had attempted to take out individual cover. As a result, they would not have been able to claim even if they had bought an individual policy and fully disclosed their health status. However, we recognise that it is more likely that the customer taking out an individual policy would be aware of the exclusion at the point of purchase than the group member. Again, that highlights the need for clear, simple products, appropriate financial advice and enhanced financial capability in consumers.
The Government and the regulator have taken several steps to improve regulation and achieve better consumer outcomes from critical illness and other insurance products. In January 2008, the FSA published the "Insurance Conduct of Business Sourcebook", or ICOBS, which applies to all general insurance and protection products and sets out, among other things, how they should be sold. Under the ICOBS regime, insurers are required to explain the key features of the product, to highlight exemptions and to take reasonable steps to ensure that a customer only takes out a policy on which they would be eligible to claim benefits. The FSA's Treating Customers Fairly initiative sets a high standard for product design, for information and advice provided to customers and for the after-sale conduct of insurance companies.
However, it was identified in 2007 that too many complaints about critical illness policies were being received and upheld by the FOS, thereby indicating a common underlying problem with how critical illness claims were being treated. I am pleased to say that the industry proactively responded to the issues and acted to restore confidence in critical illness products. In January 2008, the Association of British Insurers implemented its guidance for non-disclosure, which was upgraded to a code in January 2009. This mandatory code sets out how firms should treat customers who have inadvertently or otherwise failed to disclose relevant information to the insurer.
The code states that insurers should pay out if the customer made an innocent error in not disclosing information, unless such information would have meant that insurance would not have been offered in the first place. If the pre-existing medical condition does not relate to the claim, insurers must consider a claim. Therefore, the difference in the treatment of disclosure between group policies and personal policies that was highlighted in my hon. Friend's speech, and was exemplified in the Scottish judgment to which he referred, would no longer arise. I appreciate that that will be scant comfort to his constituent.
The ABI also has a statement of best practice for critical illness cover. It aims to make the critical illness market more straightforward for consumers through the use of standard terminology and covered conditions. Both of the ABI codes relate to group as well as individual critical illness cover.
The combination of industry best practice and regulation has successfully improved the position of those who take out critical illness policies. The payout rate for critical illness has increased from 80 to 90 per cent. in
three years. The number of complaints received and the proportion upheld by the FOS have also decreased as a result of the improvements.
Although significant steps forward have been made in improving customer outcomes through better, more robust insurance regulations and industry best practice, more still needs to be done. Too many consumers still do not fully understand what is and is not covered by their insurance policy. Work will continue on Government and industry programmes aimed at improving customers' financial capability to ensure that they have the skills that are required to decide what products are suitable for them.
Furthermore, despite the good work done by the FSA, the FOS and the ABI to improve standards for critical illness and insurance in general, we recognise that the law on what consumers have to disclose to insurers is based on a statute that is more than 100 years old: the Marine Insurance Act 1906. It was designed specifically for marine insurance, consumer insurance being practically unheard of at the time. Under that statute, consumers have a duty to volunteer all information that would have an effect on the mind of a prudent insurer. Thus insurers can refuse to pay out if a policyholder failed to disclose any information that the insurer, as opposed to the policyholder, deems to be relevant, even if the consumer answered honestly and reasonably all questions asked, for example, in relation to a pre-existing medical condition-no matter how innocuous.
That position has been mitigated over the years by way of ABI codes of conduct, FSA rules and FOS decisions. However, the result remains unsatisfactory, and the original 1906 statute has merely been over-layered to reduce its otherwise harsh effect. Further, the existence of the current patchwork of rules and codes makes the position confusing for consumers seeking to understand their rights and obligations. We support the Law Commission and the FOS view that in the long term such a disjoint between consumer interest and, indeed, industry best practice and the law is not sustainable. In the event of a dispute over customer disclosure, the FOS can use its powers to rule on what is fair and reasonable. However, if the case goes to court, the court will be forced to apply the 1906 Act.
Although it is commendable that, on the whole, regulatory and industry action has served to mitigate that gap, it is logical that we should consider amending the law to reflect the current consumer position and to provide even greater clarity and protection for consumers. The Law Commission and the Scottish Law Commission published a joint report and the draft Consumer Insurance Law: Pre-Contract Disclosure and Misrepresentation Bill in December 2009. That draft Bill would largely reinforce current regulatory and industry best practice by clarifying what it would be reasonable to expect customers to disclose and setting out how insurers should deal with inadvertent non-disclosure.
The Law Commission's consultation on the draft Bill received a favourable response. The ABI is supportive of the proposals and, out of 39 responses from insurers, only four argued against the reform. We fully support the aims of the Law Commission in reviewing pre-contract disclosure and misrepresentation in consumer insurance law. The Law Commission's proposals will be considered thoroughly in the round with other priorities for legislation
at the appropriate time, and my officials are in regular communication with the Law Commission as it progresses that work.
We have heard that a great deal has been done in recent years to improve the regulation of the insurance industry and to ensure protection for consumers. Particular attention has been paid to critical illness policies and to ensuring that policyholders are treated fairly. I would like to assure my hon. Friend that it is also clear that consumer protection in this area is challenging. We will need to continue to work regularly with regulators and the industry to ensure that insurance products are regulated effectively.
Mr. Paul Burstow (Sutton and Cheam) (LD): It is good to have the opportunity to introduce this debate, and that so many colleagues from all parties are present to contribute. I guess the subject of local newspapers is a good way of encouraging Members to attend, as we all have good relationships, even love-hate relationships, with our local papers and therefore feel passionately about their success and survival.
Like many hon. Members, I spend a fair amount of my constituency time meeting people in the local business community, listening to what they have to say, taking up their concerns and learning from them. One such meeting was the inspiration for the debate; it was with Howard Scott, the managing director of Newsquest South and West London at his office in my constituency. Newsquest publishes the "Guardian" series of local newspapers, which are well regarded and well read in many places. At that meeting he talked me through the pressures the industry is under and highlighted the impact that taxpayer-funded council newspapers are having on the health of an independent local press. I hope that all my colleagues agree that local papers are part of the lifeblood of our democracy.
Lorely Burt (Solihull) (LD): I completely agree with my hon. Friend that local newspapers are the lifeblood of the community. Does he agree that news is something that someone does not want people to know, so by printing news the papers hold decision makers and those with power and authority to account and that without them we would be democratically and socially poorer?
Local papers can and should be challenging. Sometimes, they can even be irritating and they occasionally get their facts wrong, but none of those things outweighs the public interest local papers serve. It is not just my view that local papers are part of the lifeblood of our democracy, it is also the clearly expressed view of the current Secretary of State for Culture, Media and Sport, who wrote about the matter last year in the Sunday Mirror. My purpose today is to urge the Government to act now to safeguard our local newspapers against unfair competition from council-funded local papers.
I will first give some background information. Research by the Newspaper Society last year found that nine in 10 councils now print their own newspaper. Over the past year around 60 local papers have closed across the country, amounting to almost one in 20 titles. Not all of that is due to unfair competition from councils, as clearly other factors are also at work, new media being just one example. Cost pressures have forced cuts in journalist staff, potentially compromising local papers' ability to get behind the press releases they are bombarded with from all directions.
Mark Williams (Ceredigion) (LD): Does my hon. Friend accept that the question is about not only the closure of newspapers, but the reduction in the number of editions for some newspapers? My local paper, the Cambrian News, which is celebrating 150 years since it was founded, serves a huge area of rural Wales, but we have seen a reduction in the number of local editions, which also affects the effectiveness of local reporting.
Mr. Burstow: The ability of local papers to really get into local communities in that way is clearly a concern, and obviously the cost pressures that many face are leading to such curtailments, so the hon. Gentleman makes a fair point.
I declare an interest, as I was a member of a local authority for several years, and as a former councillor I have no beef with the idea that local councils should be able to communicate directly with local residents about the services they offer, and provide information to the public. That is a legitimate role for any local council.
Philip Davies (Shipley) (Con): I suspect that I will agree with much of what the hon. Gentleman will say. He said that local authorities should communicate with their local residents, but does he agree that the main difference between what local newspapers do and what local councils do is that local newspapers hold local councils to account, whereas local council newspapers seem conveniently to concentrate on all the good things that seem to be happening? They never concentrate on the things that are going wrong in their area.
Mr. David Evennett (Bexleyheath and Crayford) (Con): I congratulate the hon. Gentleman on securing the debate. It is an issue that many Members, from all parties, are concerned about. When we are trying to engage more people in politics and the democratic process, surely the local press has an important role. Council publications cannot fulfil it to the same extent because they are informative journals, but we need to get more people interested in politics, and the only way to do that is to have a vigorous local press.
Mr. Burstow: Absolutely. That is the reason why I wanted the debate and why I was so pleased that my name came out of the hat soon after applying for the debate. I agree entirely with the hon. Gentleman's point.
Many councils have for a long time produced publications that do not compete directly with the local press. They are often magazines that are published less frequently than newspapers and focus on council services. They can provide a useful service. However, they have to be clearly different from newspapers and must not provide a new service to the local public. My council produces such a magazine, the Sutton Scene, which definitely does not compete with local newspapers.
Just imagine that a beleaguered Prime Minister decided to hire a team of journalists and commentators to produce a daily newspaper that created a positive image of the Government, talking up their achievements and promoting them as well as it could-[Interruption.] It might be impossible even for the best journalist in the
world. Such a publication would always be on message, and there would be a huge cost to the taxpayer. Clearly, there would be a lot of laughter as a result, but there would also be an outcry, because clearly that is not right, but it is what is happening locally. Taxpayers' money is being used to pay for the production and distribution of loss-making, council-run newspapers.
A sinister trend is emerging in some local government quarters of directly competing with local independent newspapers, even to the extent of putting them out of business. One council that has developed such an approach is Tower Hamlets council. It has adopted an aggressive approach to running its weekly newspaper, East End Life. The council's head of commercial operations, Chris Payne, set out the philosophy behind East End Life at a conference in Sheffield in 2008. Many independent local papers, he said,
"churn out a negative diet of crime and grime, often attacking their local council and generally creating a negative impression".
"help create a positive place-shaping agenda, talking up an area and its residents' achievements, celebrating diversity and opportunity for all. Look at your local newspapers, paid-for and free...Then ask yourself: can you do a better, brighter, more cost-effective, informative, entertaining, valued and positive local paper?"
Mr. David Drew (Stroud) (Lab/Co-op): The answer is to return to the reputable trade of journalism. Journalists should work only for independent newspapers and should be guaranteed proper training and decent wages. Does the hon. Gentleman agree that it has all gone wrong because we have undermined the trade of journalism?
Mr. Burstow: The hon. Gentleman has a point, and there is also a point about the blurring of the role of press officers and journalists writing news and newspapers. Equally, however, huge numbers of people still want to go into journalism and see local papers as an important starting place for their career.
The vision I have outlined is one that a number of local authorities certainly seem to be embracing. They are spending large amounts of public money to employ press officers to produce what amounts to little more than propaganda masquerading as newspapers. It cannot be healthy for local democracy, or indeed for accountability, as has been mentioned already, for the only source of local news to be paid for by the council.
I will give some examples of the types of practice that need to be investigated. Indeed, the excellent debate pack produced by the House of Commons Library provides many examples of the concerns about the matter up and down the country. As a London Member of Parliament, I shall concentrate on London examples.
In the past nine years, London boroughs have ditched low-key, factual publicity and launched high-frequency, in-your-face tabloids full of good news-even good news that does not bear much scrutiny. I have already mentioned East End Life in Tower Hamlets. Currently, that council paper is produced and distributed to 90,000 homes every week. It runs to 72 pages and contains news, reviews, seven-day TV listings, restaurant reviews and, of course, sport. Circulation for the local paid-for paper, the East London Advertiser, has fallen
from 20,000 to 7,500, and its advertising revenues have plummeted since East End Life started to offer subsidised advertising rates that, frankly, it could not match.
How much is all that costing? The council says that it costs £118,000 a year-good value for money for the council tax payer-but that figure hides a great deal. When one looks further, one finds that there is an awful lot of subsidy through advertising paid for by the council and other local agencies. Indeed, on the most recent figures, it amounts to £980,000 a year, so the true cost to the public purse of the publication is £1.1 million.
Mr. Edward Vaizey (Wantage) (Con): Is it not also a matter of concern that the editor of that local government newspaper is paid more than one of our most distinguished journalists, Miss Polly Toynbee?
In truth, without a huge public subsidy, East End Life would be dead and buried-it would not be able to run. However, if it were acting like a true newspaper, would it not hold the council to account? Let me give an example of what I mean.
Last year, Tower Hamlets paid out £800,000 after cancelling the contract of its chief executive. It paid out another £1 million in compensation to an employee over an age discrimination case, and £500,000 was paid in redundancy to the council's head of human resources. Large sums of public money are being paid out, but not a single column inch was devoted to explaining any of it in East End Life. When the books failed to balance for that particular operation, and the paper found itself with a £400,000 shortfall in advertising income, it dipped into the council's reserves to find money for a bail-out. There was no debate, there appears to be no accountability, and there were certainly no column inches devoted to explaining why that was a good use of council tax payers' money.
Derek Wyatt (Sittingbourne and Sheppey) (Lab): Can the hon. Gentleman enlighten us as to whether the accounts were then passed by the Audit Commission? Has he been in conversation or correspondence with the commission about that?
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