Amendment No. 279 has already been discussed with amendment No. 269.
SECTION 110.
I move amendment No. 279:
In page 59, subsection (1), line 25, before "An" where it firstly occurs, to insert "A mortgage agent shall ensure that".
Amendment agreed to.
I move amendment No. 280:
In page 59, subsection (3), line 39, after "policy" to insert "at the initial premium".
Subsection (3) provides that the warning notice need not be furnished to the applicant where the insurer guarantees that the proceeds of the endowment policy will be sufficient to repay the loan, or alternatively where the lender undertakes to accept the proceeds of the policy as being sufficient to repay the loan.
The amendment is designed to ensure the requirement to provide that a warning notice is not circumvented by such guarantees being based on the endowment premiums increasing over the life of the loan. As a result of this amendment, any guarantees regarding the policy being sufficient to repay the loan will have to be based on the borrowers' endowment premium not increasing beyond what it was at the time the loan was taken out. The reality is that complete guarantees of this sort will generally be expected to result in relatively high endowment premiums. As a consequence, most endowment mortgages are below cost and do not carry full guarantees.
The Minister's amendment is preventing a possible abuse and, in that respect, it is welcome. The last thing we would want to see is people getting no warning but finding that their premiums kept climbing every year. Therefore, I welcome the amendment.
Amendment agreed to.
I move amendment No. 281:
In page 60, subsection (5), lines 4 and 5, to delete "in a loss or very little return to the consumer" and substitute "in a return to the consumer which would be less than he has paid in premia and other charges,".
A person may seek to surrender an insurance policy in respect of an endowment at an early stage and discover to their shock that they actually lose money by doing so because of the nature of the package into which they have entered. The words "result in a loss or very little return to the consumer" were not clear and as a result I am putting forward the amendment to clarify the position. I am substituting the words "in a return to the consumer which would be less than he has paid in premia and other charges". Substituting those words ensures that the consumer will at least know what he is letting himself in for and will not contemplate surrendering the policy at an early stage. As a requirement of this subsection, as amended, the consumer will not enter into early surrender because the consequences will be very costly.
What we are providing is that they will be warned that in cases of early surrender they will not even get the value of their premia. The very worst situation is that they surrender and do not even get their premia back. Should they not also be warned if they are only to get 10 per cent of the value of their premia on early surrender?
They will be warned where the possibility exists that early surrender of the insurance policy may result "in a loss or very little return to the consumer".
That is what the Minister is deleting.
Yes, that is what I am deleting. I am putting in the words "in a return to the consumer which would be less than he has paid in premia and other charges". We thought that "very little return" was very vague.
It is vague.
A little return to some might be a massive return to others.
We are saying that a consumer could have paid in, say, £3,000 in premia and will only be warned if the value of the policy is less than that. Is that it?
Would he not be warned earlier? In section 110(1) it is provided that a general warning shall be given:
There is no guarantee that the proceeds of the insurance policy will be sufficient to repay the loan in full when it becomes due for repayment.
I think that it is acceptable. If he has paid in £3,000 in premia, if the policy is not worth more than £3,000 at that stage, he will be warned.
He will be warned and also he will be aware of the consequences.
Will he be warned each year? Essentially, the early surrender in year one is different from the early surrender in year two.
He will be told the growth pattern and results under another section.
This warning will have to be there regardless. In year one your policy is not worth the full amount of the premium since you are paying commission. People should always be warned that early surrender is a bad thing on these policies. The provision will probably meet that because, effectively, they will have to warn them straight away.
I draw your attention to subsection (6) which states:
An insurer underwriting an insurance policy in respect of an endowment shall within five years of the policy being issued and every five years thereafter, until such time as the endowment loan is repaid, issue or cause to be issued to the borrower, a statement setting out the value of the policy as estimated by the insurer, at such date.
On reflection, I am happy enough because this provision will mean that when it is set out in year one your provision will certainly be true and therefore there will always be a warning there.
Yes, in other words there will be constant warning.
It is rather a long way of going about it but there should be a warning of early surrender value risks. May I ask why he is not told of the surrender value?
At the beginning?
Yes.
How would one know when he was going to surrender it?
One would know the schedule of the surrender value. In year one you know.
It is still a projection.
It will probably be used to discourage people from even considering cashing in their chips. It probably has a lot to do with the selling method.
We all know the furore there was about endowment mortgages and I am sure we all came across people in that situation. What happened was that they were not told the story. Such mortgages were over-enthusiastically sold.
I do not think we want to encourage people to sell. A lot of people have been very shocked to find that they will either lose money or have gained very little over a long period.
Yes. The figures are an assumption because they are based on many variables. That is why endowment sales have dropped everywhere.
In respect of this amendment, is it the case that in year one a significant part of the premium is absorbed in commission?
In commission charges, and in years two and three.
Why have we such a convoluted way of saying that consumers should be warned of early surrender problems? This provision, where we are restricting the cases where early surrender would have to be warned about, seems senseless. In respect of endowment policies people should always be warned of the problem of early surrender. I do not understand why it is necessary to put in this sort of provision. I accept that it is doing no harm there.
It does seem a long round to get at what we want to get at.
Yes.
It is fair enough within the Bill.
Amendment agreed to.
I move amendment No. 282:
In page 60, subsection (6), line 8, after "endowment" to insert "loan".
The purpose of this is simply to correct an omission in the printing of the Bill. The word "loan" appears after "endowment" elsewhere throughout the section and it should also appear here.
Amendment agreed to.
Amendment No. 284 is an alternative to amendment No. 283, and, by agreement, we will take both amendments together.
I move amendment No. 283:
In page 60, subsection (6), to delete line 11 and substitute the following:
"(a) the estimated surrender value of the policy at such date, and
(b) the estimated value on maturity.".
The purpose of this subsection is to ensure that the borrower is kept aware of the state of play with regard to his endowment loan. The purpose of the amendment is to clarify it, as the subsections to do with this section provided that the insurers supply the value of the policy as estimated by the insurer. The amendment provides that the insurer will supply the estimated value of the policy at such date and the estimated value on maturity. The information which is to be provided to the borrower as a result of the amendment is of more use to him.
I think we are driving at the same thing. I tabled amendment No. 284 because I had an endowment mortgage and they were sending me information which was wholly useless under present provisions. They tell you the value of your insurance endowment but they do not in any way suggest what that should have been valued at in year three. A person with a £40,000 mortgage might get a letter from the insurance company stating that the policy is now worth £13,000 and would not know whether that was good or bad. He or she will want to know if it will be worth £40,000 in 20 or 25 years. Despite all the warnings about endowments, one still has to search for information. I discovered, to my cost, that after only four years I am £13,000 off a £40,000 mortgage. They are running way off course at the moment, 25 per cent off after four years. This serious issue came to my attention as a result of personal experience.
My amendment may be gilding the lily as it asks for a statement of the present value, the projected value, if the assumptions on which the policy was sold had been achieved, and the ultimate maturity value about which people are concerned. I am glad the Minister accepts the point. I do not mind which amendment is used although I believe mine is better. However, I am open to persuasion that the Minister's is acceptable.
We should also consider the action consumer's could take on discovering their endowments are off target. There is a strong likelihood that insurance companies will be selling insurance products when they discover this. We should seek to protect consumers and tell them it is time to shop around for alternatives to being drawn into more premium payments on this policy.
It might be better for the consumer to start paying off the capital rather than being led by the nose into topping up premia by an insurance company which has failed to deliver the goods on the endowment. I did not frame an amendment to deal with this but consumers should be alerted to the fact that if they go off target, they should look for other options.
Should projections be given at all when one considers that they have proven to be false in many cases? We must be charitable and say that they are not deliberately false but false because of the variable nature of the climate in which they operate.
It is essential that projections and the revised value at maturity are given because that is the only thing a person understands. If they have to pay £40,000 in ten or 12 years' time, they must know how far off that £40,000 they are. It is essential that we require them to give the estimate of the valuation on maturity.
My concern is that when one is £15,000 off target, the insurance company will ask one to top up the premia. It is time for the consumer to pause and look at other options, such as paying off the capital. The consumer could try to meet the £15,000 shortfall by making some payments now and saving both on interest and on capital rather than going back into a risky endowment policy. I wonder whether, on Report Stage, we should consider including a provision requiring that——
Information would be given at that point as to another path which could be taken which would be better financially.
Not necessarily but one could at least be told there is more than one way to resolve the difficulty.
May I return to the matter of projections which is the thrust of the Deputy's amendment?
My amendment is not different from the Minister's.
I know but the result of the Deputy's amendment would be to compel insurance companies to make projections.
So would the Minister's amendment.
I know; both amendments would. Endowment mortgages involve projections which estimate how much the consumer will earn but they are no guarantee of the eventual value. I accept the point that there has to be an objective towards which one is working.
My formulation requires them to state after five years——
The point at which they have arrived.
Yes, and also state the projection given in the sales brochure five years previously as to what it would be worth. In a sense——
It is retributive.
That is the idea.
That is exactly what it is.
The Minister's amendment may be more relevant to the interest of the consumer.
It is more relevant. The Deputy is not so much seeking to gild the lily as to point out bad practice when it is visible at the end of, for example, a five year period. Comparisons can then be made. Is that information any good at that point?
It prevents making rosy projections about the ultimate maturity value at year 25 and ensures the consumer is told that he or she is now worth £4,000 less than the original projection. Rosy projections would conceal the fact that one is already some thousands of pounds off target. My amendment is more complete from the point of view of the consumer.
The Deputy's amendment seeks to insert: together with a comparison of this valuation to the valuation at such date projected at the time the policy was first written, and a revised estimate of its valuation at maturity.". The Deputy is looking for three things: what it was; what it is now and what it will be. We should accept the amendment. It is not exactly draconian but certainly is retributive and the result is the diminution of rosy promises to other consumers.
It has one other advantage. The worst comparison would be at maturity but my amendment prevents them from continuing to paint a rosy picture. If they are manifesting a wrong the consumer should know that and take the value of any projection made with a grain of salt.
The lender would be brought to his or her senses if they were seriously out of line.
Amendment, by leave, withdrawn.
I move amendment No. 284:
In page 60, subsection (6), line 11, after "date" to insert "together with a comparison of this valuation to the valuation at such date projected at the time the policy was first written, and a revised estimate of its valuation at maturity".
Amendment agreed to.
Question proposed: "That section 110, as amended, stand part of the Bill."
Will the Minister consider before Report Stage whether we could provide for an advice notice to inform people of other options when they are seriously off target?
I understand the Deputy's point. It would inform the consumer of the option of repaying the principal.
Something like that as opposed to having consumers led by the nose into more premia.
Question put and agreed to.