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Lord Sharman: My Lords, I am grateful to the Minister for giving us a full explanation of the arguments behind the orders. We could have saved him from having to make some of his speech, because he will recollect that when the Financial Services and Markets Bill was passing through the House the noble Lord, Lord Kingsland, from the Conservative Front Bench, and I argued strongly that the regulation of the provision of mortgage advice and services should have been included in the Bill. I am very pleased to see that three years on the Government have finally agreed with us.

In general, we on these Benches support the orders. However, as the Minister indicated, we have some reservations about them, and in particular with the very difficult issue of equity release reversion schemes. I understand that they do not qualify as mortgages within the meaning of the law and therefore cannot be covered. It surely is within the wit of the Treasury and its draftsmen to come up with some regulations in that regard. The Treasury's press release on the matter states:

I stress that these are the Treasury's own words—

    "elderly, and sometimes vulnerable, people who have paid off their mortgage".

It may well be that informal discussions with stakeholders show no signs of mis-selling, but I wonder how long before the pensions mis-selling crisis or the split capital trust mis-selling crisis we could have said the same thing.

To us on these Benches, it is simply not acceptable that the sale of what I will call quasi-mortgage products is not regulated when similar products just across what I may call the smart lawyer definition divide are regulated. Yet again, it will be the most vulnerable members of our society who are threatened as a result of the Government's lack of foresight. There is scope for a mis-selling crisis. Regulation should be about preventing mis-selling, not waiting until we have evidence that it is going on and then doing something about it. The Government should know that. On the back of pensions and the split capital crisis, it is essential that the loophole is closed rapidly.

My second reservation about the orders, as the Minister forecast, relates to travel insurance. As the Minister rightly said, travel insurance sold as part of a package will not be regulated. As I understand it, the situation will be reviewed in 2007. The ABI, the Consumers' Association and the General Insurance Standards Council oppose this. Their strong view,

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which we share, is that it should be included, to ensure consistent regulation and, in particular, consumer protection. The ABI has said that 60 per cent of travel insurance is sold through travel agents or tour operators. That begs the question: why bother, if we are going to regulate only 40 per cent of the market? If that 40 per cent is worth regulating, the other 60 per cent is.

Twelve million travellers a year purchase travel insurance. Some 300 million is spent on that insurance. I draw to the Minister's attention the Which? report published in April 2003, which said that every independent travel agent whom they visited was mis-selling insurance cover. I support the Consumers' Association position. It says:

    "Under the regime, brokers and insurers who sell travel insurance direct to consumers will be regulated . . . their customers will have access to the Financial Ombudsman Service. It is not clear to what extent customers who buy their travel insurance as part of a package will be protected at all. While the Association of British Travel Agents (ABTA) does have a code of practice not all travel agents are ABTA members".

How do consumers seek rectification of complaints about the way in which their insurance was sold? They have no access to the Financial Ombudsman Service. The Government should think again on that.

With those two significant reservations, we support the orders.

Lord Hunt of Wirral: My Lords, as this is my first opportunity to do so, I congratulate the noble Lord, Lord Davies of Oldham, on his promotion and his new responsibilities and wish him well in the future. Like the noble Lord, Lord Sharman, I welcome him to the debate on the Financial Services and Markets Act 2000. The Minister will understand that there is a long history here, to which the noble Lord, Lord Sharman, has already referred. On the back of many of the comments made by the noble Lord, Lord Sharman, I must say that it is a matter of regret on these Benches that the House is being asked to approve the orders. They contain legislation that is, to a substantial extent, unnecessary.

We are faced with a solution looking for a problem. For more than a decade, this Government and the previous administration resisted attempts in Brussels to adopt an insurance mediation directive. The reason, apart from the particular concerns that we are expressing this afternoon, is that there are no consumer protection concerns needing to be addressed. The measures will represent poor value for money for consumers, as they will pay the ultimate cost of implementation through higher insurance costs and reduced choice.

The official reason for the directive is that it will reinforce the single European market. In this case, sadly, cross-border traffic has never been great, although we need to redouble our efforts to secure a fairer market for UK-based companies. Also, there is no sign that legitimate demand has been frustrated by differing regulatory standards in member states.

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Putting it simply, general insurance broking has not been regulated by statute until now; it is a pity that it could not substantially remain so.

Given the directive, however, I join the noble Lord, Lord Sharman, in saying that it is doubly unfortunate that the Government should have chosen to make matters worse by implementing the directive in respect of travel insurance in an unfortunate way. This will be regulated now when it is sold as a stand-alone product by an insurer direct to consumers or through an insurance broker. But when it is sold as part of a holiday package, it is to be excused regulation.

It would be simple to argue that since the entire directive is unnecessary—I realise that I am saying that from these Benches only—the less its reach, the better. But by treating travel insurance in this differential manner, the Government surely have their priorities the wrong way around. Packaging products so that the buyer does not exercise choice is a prime cause of consumer detriment in many sectors and is surely well known to the authorities. By contrast, consumers buying travel insurance direct, either from insurers or insurance brokers, are more likely to acquire their insurance as part of a transparent process and often as a result of shopping around. Better value for money can often be achieved by this route. So I hope that the Government will reconsider their position. I shall come back to that issue in a moment.

I also reiterate the concern of the noble Lord, Lord Sharman, given the very strong representations made by a substantial lobby headed by the Consumers' Association, the British Insurance Brokers Association and the Association of British Insurers. Like the noble Lord, I quote from a letter to the Chief Secretary to the Treasury from all three bodies stating, quite simply, that the statutory regime which the Government are proposing,

    "will act to the detriment of consumers".

The Minister sought to deflect some of the criticism by saying, "Well, we know we may have got it wrong"—I, of course paraphrase—"But don't worry because we shall look at it in 2007". That may reassure the Minister but it does not reassure us.

Why is it a matter for reaching a different decision now? The bodies that are putting forward these views have consistently argued that all travel insurance, if we are to move down this road, should be included in the statutory regime. If it is not, an unlevel playing field will be automatically created for the providers; confusion will be caused to the consumers; and consumers will be denied proper protection. It is as simple as that. Insurance brokers and insurers will have to bear the costs of FSA regulation. Travel agents will not.

Surely, therefore, this would tilt the competitive playing field even more in favour of travel agents. Over time, it would surely lead to more travel insurance being sold without the backing of FSA regulation. That would be a perverse outcome. As I understand it, the Minister is saying that all travel insurance is not included in the FSA regime because there was no evidence of systematic mis-selling of travel insurance

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sold as part of the package presented during the consultation process. As the noble Lord has already pointed out, and as I think the Minister conceded in a comment when he said, "Well, there may be some evidence", the Consumers' Association and Which? magazine presented evidence during the consultation which indicated that out of 28 travel agents surveyed, only one checked for pre-existing medical conditions, as well as explaining what the policy did and did not cover.

In 1996, Which? magazine contacted 35 sellers of travel insurance, including travel agents and direct sellers, and found that only three explained details of the cover and only two mentioned any exclusions. A 1999 survey of Which? members revealed that consumers are twice as likely to be very dissatisfied if they have to make a claim on insurance bought through travel companies and tour operators than when buying from banks and building societies and other specialist advisers. So what is the evidence to which the Minister referred when he stated that there is insufficient evidence of detriment to consumers? It would be helpful if he could indicate the evidence that he has which balances or outweighs the evidence put forward so strongly by the noble Lord, Lord Sharman, and myself.

I have a number of other points to make, although I want to keep my remarks reasonably brief. A further anomaly in the outcome of the consultation process is that, while those to whom I have already referred want to see a level playing field, that is not a requirement of the directive. Therefore, direct insurers will be covered by regulation alone. But I am not sure whether the Treasury carried out a cost-benefit analysis before reaching that decision. Although the Minister did not use that argument, I understand that it is a point from Her Majesty's Treasury that the justification for not regulating travel insurance sold as part of a package lies on cost-benefit grounds. However, if the Treasury took the decision not to regulate the direct selling of any insurance products not required under the directive without any form of cost-benefit analysis, how can it justify that inconsistency? It would be helpful to know which cost-benefit analyses were carried out and what were the results.

Several other points which need to be raised have already been referred to by the noble, Lord Sharman. The Minister referred to the deferral of the decision on whether to regulate extended warranty products on domestic appliances. I understand that the decision is to be deferred until we have the results of the inquiry into the market being undertaken by the Competition Commission. However, that is disappointing and I trust that the conclusions of the Competition Commission will be available for further consideration of this issue as soon as possible.

I hope that the Government will reconsider their decision on travel insurance. They have spoken previously about a consistent and streamlined

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approach. Can we have that on the matter of travel insurance, and will the Government please think again?

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