Backbenchers - many of whom had no idea that the party had branched out into insurance - have been receiving calls from irate constituents whose personal details appear to have been plucked from the party's database and used by American International Group, the company underwriting the policy.
The Labour Party Casualty Plan offers up to pounds 5,000 to members who suffer personal injuries. It is the second policy of its kind launched by the party. Last year, other mailshots advertised the Labour Party Personal Accident Protection Plan, which offered cover for up to pounds 10,000.
This time, however, the fact that those targeted appear to be over 50 has led some MPs to conclude that the information taken from membership application forms and the party's database is being improperly used.
"I had a furious constituent on to me but I knew nothing about it," said one backbencher. "He sent me the literature and I was astonished. I had no idea we were selling insurance - it took my breath away.
"Whatever next, Ann Summers catalogues in conjunction with new Labour?"
That MP, who did not wish to be named, and others, have told The Independent that constituents are considering reporting the matter to the Data Protection Registrar, Elizabeth France.
Under the Data Protection Act, all information must have been "fairly obtained" and the donor must be made aware of - and agree to - any future uses. It may not be passed on to a third party without the donor's permission.
The advertising literature - complete with the Labour red rose and featuring pictures of elderly people falling off ladders or tripping over garden rakes - is delivered in an envelope marked: "If undelivered, please return to The Labour Party, John Smith House" - Labour HQ.
However, an employee at UNAT Direct, an American-based insurance company administering the scheme in Britain, said yesterday that the firm was passed information from the Labour Party. The mailshots, she said, were handled by an independent mailing company, not by the party.
"The Labour Party issues us with names and details of their members," she said. "The mail is sent out by a mailing company. I think this went out to members over 50."
Party membership forms do not carry a statement explaining that information may be passed on to third parties for marketing purposes. There is a section, however, asking applicants for their date of birth.
A Labour Party spokeswoman confirmed that members' details are passed to the insurance company and the mailing house but on a purely confidential basis.
"We have contracts with them to ensure the information is destroyed or returned to us," she said.
"There is no question of it being sold on to a third party. The financial services we offer are purely voluntary; if our members don't want them, they can simply throw the details away."
She said that Labour receives commission on each policy sold but insisted that the mailshots were random. The first policy, the Personal Accident Plan, is expected to earn the party pounds 20,000.
David Smith, an assistant data protection registrar, said an investigation would be launched if any of Labour's members complained.
"If their details are being passed to a third party, we would expect people to be made aware of that fact and given the opportunity to withhold the information," he said.
"It is something we would certainly look into if it were raised with us."
The plan provides a scale of payments for personal injuries ranging from a fractured hip at pounds 3,000, pounds 240 for second or third degree burns to "4.5 per cent or more of body surface" and pounds 900 for internal injuries. The maximum payout for injuries sustained in any single accident is pounds 5,000.
Labour members interested in joining the scheme are asked to call Irene Wolfenden (at UNAT Direct) on 0181 680 7194. Those who apply before 15 September will receive a free digital alarm clock.Reuse content