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Insurance Brokers (Registration) Act 1977 (Amendment) Order 1995

5.11 p.m.

Lord Chesham rose to move, That the draft order laid before the House on 16th October be approved [29th Report from the Joint Committee].

The noble Lord said: My Lords, the Insurance Brokers Registration Council proposes to introduce compulsory qualification by examination. This 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 this change would be in the interests both of the profession and its clients.

As your Lordships 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 as well. But it is important to stress that this is an evolutionary, not a revolutionary, step.

The council has for some time encouraged insurance brokers to obtain voluntarily the Associateship of Chartered Insurance Institute—the ACII. About a third of the profession now hold it. The council has offered guidance to all insurance brokers on what constitutes professional good conduct in relation to continuing professional education. Now the council proposes, if the order is approved, that new entrants to the insurance broking profession be required from 1st January 1997 to have passed four specified subjects of the ACII. The council further proposes, as a second stage from 1st January 2000, that new entrants to the profession be required to obtain the full Associateship of the CII.

I should explain before I go on that alternatives to CII qualifications will also be considered. Indeed the council anticipates that a number of university qualifications will be equivalent and proposes, if the order is made, to begin to look in detail at the syllabuses of other qualifications such as NVQs. However, the Chartered Insurance Institute has long been the traditional provider of qualifications for the insurance sector, and so it is its qualifications that are the model for the council's proposals.

I should also, for the sake of completeness, make a few other points on the detail of the council's proposals. The first is that the order provides for one exception to

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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 of this is that we cannot impose our own compulsory examinations on EEA brokers to whom the directive applies. It is worth noting, however, that the council anticipates that only a few EEA applicants will need to be considered under the directive on the basis of experience alone. Increasingly, in Europe insurance intermediaries are being required to obtain examination qualifications.

A second point is that at the second stage of the council's proposals, from 1st 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 UK regulations implementing this directive will be needed to take account of the IBRC's role as a designated authority.

The order comes into force on 1st January 1997. It needs to be made now, however, in order 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 these standards to be required by regulators such as the IBRC. The increasing sophistication of insurance products available 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 to demonstrate their knowledge through qualification by examination.

The proposals also reflect developments in the European Community. The Commission issued a recommendation in 1991 that, 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 this 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 only apply to new entrants to the profession—the proposals are not retrospective. So no one already in the business will face any extra cost at all. In addition, they only apply to those who wish to use the style "insurance broker". Those who act as insurance intermediaries under another style will not be affected by the council's proposals.

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The Office of Fair Trading has been consulted. Its conclusion is that the proposals are not anti-competitive. 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 they place on business.

To sum up, 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, and without imposing unnecessary burdens on business. I commend the order to the House.

Moved, That the draft order laid before the House on 16th October be approved [29th Report from the Joint Committee].—(Lord Chesham.)

Lord Graham of Edmonton: My Lords, from this Front Bench we give a welcome to the proposals. I am glad the Minister indicated that there was a fair element of consumer protection as well as an intention to make more stringent the rules and conditions under which one can use this title. I was intrigued to note that the proposals merely protect the title "insurance broker" and that there could be other people who are doing precisely what insurance brokers do but who call themselves something else. The Minister should take that point on board.

I realise that the matter is very much wrapped up with the industry's professional body. I recall, as a Member of another place when this measure was introduced in the 1970s, that there was resistance from the profession to the need perceived by the then Government and by the people in the country to bring in some form of regulation. The Minister should know that in insurance matters most people are, if not ignorant, then not very knowledgeable, about the terms, the understandings and the nuances. In one's personal life one takes out insurance and one can have the benefits explained. But sometimes, to one's cost, it is not until later that the disadvantages of the arrangements are brought to bear. We on this side of the House certainly view the order as a benevolent measure.

Will the Minister say more about trying to ease the passage of those who may be qualified in some other way and who wish to comply with the new regulations? Before now experience was perfectly valid and fair. The institute should be commended for wanting to tighten membership qualifications. When I was a student at the Open University I remember that under the system it operated exemptions were obtained provided one had qualifications which were acceptable to other bodies. Can the Minister say whether any progress has been made in discussions between the institute and others as to the level at which the qualifications of the outside bodies will be accepted? For instance, there may well be exemption at an intermediate level; at a preliminary level; or even in certain subjects. On this side of the House we recognise that even if it costs more and takes more time, the reputation of the industry is at stake. I believe that the Minister and his colleagues would do

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well to look on the matter in that light. Other than that, we on this side of the House give the recommendations and changes our approval.

The Earl of Kintore: My Lords, I have an interest to declare. I am an ACII with three subjects at distinction. I thank the noble Lord, Lord Chesham, for introducing the order so clearly. I believe that it is something which the insurance industry will welcome. I hope that we shall shortly pass it.

Lord Chesham: My Lords, in reply to the noble Lord, Lord Graham, I would say that the activities of the intermediaries other than insurance brokers—I am not sure what the nomenclature is supposed to be because we are actually considering insurance brokers and not anything else—are of those who sell general insurance. They are governed by the Association of British Insurers and its code of practice. I believe that that may partially answer the question. I am not quite sure what kind of animal we are devising on this matter. There is little evidence to suggest that all independent intermediaries should be regulated by the IBRC. It is an issue that was most recently reviewed in the light of the European Commission recommendations on insurance intermediaries. The Government's conclusion, announced in the House on 19th July last year, was that the most cost-effective response to the recommendations was to build on the existing arrangements.

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