FCA criticises some life insurers, with Prudential and Old Mutual among the companies under scrutiny
A Scottish Widows office in Edinburgh. The company became part of Lloyds Banking Group in 2009. Photograph: Murdo Macleod for the Guardian
Julia Kollewe
Britain’s financial watchdog has strongly criticised the way some life insurance firms have treated longstanding customers with pensions and other savings products and is carrying out a further investigation into six companies.
The investigations forms part of a wider review conducted by the Financial Conduct Authority into whether insurers have treated customers locked into pension and other savings plans fairly compared with new customers.
The review has focused on 11 insurers, and found a mixed picture, with most of the firms demonstrating good practice in one or more areas and poor practice in others. The companies being investigated are Abbey Life, now owned by Deutsche Bank; Scottish Widows, part of Lloyds Banking Group; Countrywide; Police Mutual; Prudential and Old Mutual
The new investigation is expected to take months, and will focus on the disclosure of exit and paid-up charges at the six firms after December 2008. For Abbey Life and Old Mutual, the FCA will also investigate whether they breached regulatory requirements across a number of other areas.
The FCA scrutinised samples of documents sent to customers who had requested either to surrender or transfer their policies. At six of the 11 insurers, exit charges applied in some cases and the FCA said the companies might have failed to inform customers of these charges when the policy was exited or converted.
Britain’s financial watchdog has strongly criticised the way some life insurance firms have treated longstanding customers with pensions and other savings products and is carrying out a further investigation into six companies.
The investigations forms part of a wider review conducted by the Financial Conduct Authority into whether insurers have treated customers locked into pension and other savings plans fairly compared with new customers.
The review has focused on 11 insurers, and found a mixed picture, with most of the firms demonstrating good practice in one or more areas and poor practice in others. The companies being investigated are Abbey Life, now owned by Deutsche Bank; Scottish Widows, part of Lloyds Banking Group; Countrywide; Police Mutual; Prudential and Old Mutual
The new investigation is expected to take months, and will focus on the disclosure of exit and paid-up charges at the six firms after December 2008. For Abbey Life and Old Mutual, the FCA will also investigate whether they breached regulatory requirements across a number of other areas.
The FCA scrutinised samples of documents sent to customers who had requested either to surrender or transfer their policies. At six of the 11 insurers, exit charges applied in some cases and the FCA said the companies might have failed to inform customers of these charges when the policy was exited or converted.
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Tracey McDermott: ‘The practices at some firms appear to have been poor.’ Photograph: Graham Turner for the Guardian
If any of the six firms are found to have breached the FCA’s standards, they could face disciplinary action and potential fines and may be forced to pay compensation to customers.
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Tracey McDermott, the acting FCA chief executive, said: “The practices at some firms appear to have been poor. We have particular concerns regarding how some firms communicated with their customers about exit and/or paid-up charges. We are now doing further work to understand the reasons for these practices, whether customers may have suffered detriment as a result and, if so, how widespread these issues are.”
She added: “Given the long-term nature of closed-book products, it is vital that customers are treated fairly and given the right information on an ongoing basis in order to help them make important financial decisions. We expect all firms with closed-book customers to take into account the findings we have published today and ensure they are treating their closed-book customers fairly.”
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Matt Browne, the director at PricewaterhouseCoopers, which has helped clients prepare for FCA visits, said: “The regulator isn’t pulling any punches and looks set to take action across the life industry based on these findings.”
He added: “It’s clear the review is going to have a big impact on life assurers. That’s to be expected. But these firms are already shouldering a weight of regulatory and legislative change, not least of which are the pensions reforms, which could include a cap on charges.”
Bruno Geiringer, an insurance partner at the law firm Pinsent Masons, said: “Insurers would be well advised to treat these findings very seriously.” He warned of extra costs for all life insurers with closed-book customers, and advised them to carry out an extensive fairness review of their products, particularly the exit and paid-up charges and their communications with customers.
Geiringer added: “On top of that, some insurers have already announced scrapping exit charges for corporate pensions and, if this practice is extended across their closed-book product range which is what is suggested by the FCA, there will be further direct costs to these insurers.”
He believes this could lead some insurance companies to sell off their closed books of old life insurance policies and pensions, also known as zombie funds, to specialist operators.
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The FCA wants to work with industry on a voluntary solution to capping or removing exit and paid-up charges. New rules currently being considered by parliament would cap exit charges on customers cashing in their pension savings from the age of 55 following the government’s pension reforms.
A Prudential spokesman said: “Prudential will work closely with the FCA as it continues its review.”
Hugh Savill, director of regulation at the Association of British Insurers, said it would study the findings in detail, before adding: “It should be recognised that products analysed in the review bear little resemblance to the long-term savings market today, which continues to modernise and deliver value for money products with lower charges in the era of auto enrolment and pension freedoms.”
He added: “We are pleased that the FCA has found no evidence of any systemic intention to take advantage of customers in older, closed-book products. However this report highlights that more needs to be done to improve governance of and communication with customers with older-style products. We will be discussing with members and the regulator ways to ensure that this happens.”
The Guardian
