My Lords, I declare an interest as the chairman and chief executive of an insurance broking and financial services organisation.
The Government currently provide compensation for British nationals who become victims of terror within the United Kingdom. They also provide compensation to non-British citizens of terror in this country; for example, all victims of the 7/7 bombings have been compensated. Compensation is paid by the Criminal Injuries Compensation Authority and total payments amount to about £200 million annually.
Unfortunately, British citizens who are victims of terrorism overseas are not compensated unless they are in a country where compensation arrangements already exist. Over the past decade, British citizens have been killed or injured in a number of overseas territories. There is considerable hardship in these cases and there is therefore a need to set up a scheme whereby payments are made.
Although I am very sympathetic to the intention behind the Bill, I should like to raise a number of points relating to the proposals in it.
Insurers who provide travel cover are committed to paying claims as quickly as possible, but it must be pointed out that travel insurance is not primarily designed to cover personal injury or death claims. A travel insurance policy is a package-type of insurance providing cover under various sections, including personal accident, medical expenses, baggage, cancellation and curtailment benefits, loss of personal money and personal liability. Cover in regard to death, injury and long-term care are more appropriately provided under personal accident, life insurance and income protection policies.
Travel insurance is very competitively priced, but the more you add on, the more it will cost. We believe that one-third of travellers who go abroad from the United Kingdom do not effect travel insurance and they therefore expose themselves to considerable risks if things go wrong. Insurers would like to provide as much cover as possible at a competitive price to encourage people to effect cover. Unfortunately, however, only about 66 per cent of people take out policies, which is not satisfactory.
Practice among insurers regarding terrorism varies and can be summarised as follows: first, no cover at all; secondly, only medical expenses and repatriation cover following a terrorist attack; thirdly, medical, repatriation and personal accident cover for terrorism except in cases of nuclear, chemical or biological attacks; fourthly, personal accident medical expenses sections which apply unless people travel to a country or specific area where the Foreign and Commonwealth Office has advised them not to go.
Those standard covers are available to all policyholders, but insurance is available for both travel and personal accident to people who wish to travel to countries where there is a danger of terrorism or hostilities. Insurers underwrite that separately and the premiums are high. There is therefore special insurance to cover terrorism abroad, which provides appropriate benefits.
I feel that proposals to provide insurance generally to everyone would be difficult to implement. There are several factors in this regard, which can be summarised as follows: first, there is a question of cost and how the premiums are to be assessed; and, secondly, for a scheme to be meaningful, it needs to be made compulsory. The only compulsory insurances in the United Kingdom are employer’s liability and motor insurance for third-party risks; in other words, cover is mandatory where there is a possibility of death or injury to other people. A number of drivers do not effect motor insurance, despite road traffic legislation, and payments for their liabilities are paid by the Motor Insurance Bureau, an organisation set up by insurance companies and funded by levies on the insurers.
I have already pointed out that at present one-third of people who go abroad do not take out travel insurance, and compulsory insurance requirements would therefore be difficult to implement and difficult to police. Arrangements for insuring property damage and business interruption caused by terrorism in the UK came into force in 1993. Prior to that, insurers were unwilling to provide full cover for terrorism and cover was granted with limited indemnity liability.
The Reinsurance (Acts of Terrorism) Act 1993 was enacted to address the provision of full cover, and Pool Re was set up as a response to the Act. HM Treasury is the reinsurer of last resort for Pool Re, protecting it in the event that it exhausts all its financial resources following payments.
Since 1993, Pool Re has made payments of £612 million and has reserves of £1.664 billion. Insurance cover for policyholders provided under the Pool Re arrangement is optional, and policies are taken out by property owners who can afford the premiums. Therefore, the insurance is not compulsory. However, there would be a problem of affordability with regard to overseas travel cover for the general public, and, as I said earlier, to be meaningful, it would need to be mandatory.
I have heard people say that reserves built up by Pool Re could perhaps be released to pay for injuries to people who travel abroad. As I have said, Pool Re has reserves of more than £1.6 billion, but I believe that the release of these funds would be unwise as the reserves are necessary to pay large claims following a major incident or incidents occurring in future. I may add that the damage at Canary Wharf, Baltic Exchange and the Arndale centre was in excess of £1 billion each. Furthermore, it could be argued that the premiums have been paid by policyholders who have insured their properties, and to use them for any other purpose would not be appropriate.
There is another option regarding funding, which is to apply a levy of some sort, which could be considered. If such a levy were applied, it would be considered as a tax on holidays and travel. A levy would therefore cause difficulties and not be very popular. I therefore feel that compensation for injuries for terrorism overseas can be considered as an extension of the Criminal Injuries Compensation Authority arrangements. The existing scheme is successful; matters are investigated fully and fraudulent claims are resisted. At present, payments under the compensation scheme are made under the Home Office budget, which may have been frozen by the Chancellor.
In October 2005 the Prime Minster announced that the Government were looking at setting up a separate compensation scheme to cover British victims of terrorism overseas, and perhaps this matter can be pursued further. I understand that there are compensation schemes operating in other countries, which are funded by their governments. It remains to be seen if there is the political will to arrange state-run schemes in the United Kingdom and whether funds can be made available to implement the scheme. The mechanism is, however, here to process the claims.
The cost of the scheme will, of course, depend on the scale of benefits, who will be the beneficiaries and the number of incidents involved. I understand that a figure of £3 million has been suggested, and I am not sure if this will be sufficient. I add a note of warning that, if consideration is given to extend the Criminal Injuries Compensation Authority scheme to pay for terrorism overseas, there could be a demand that the scheme should be extended further to pay for victims of all violent crimes overseas.