The Endowment Diary

The Endowment Diary

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The Endowment Mis-selling Debacle - one of the UK's worst financial scandals

Monday, September 27, 2004

What the Life Assurance Firms Don't Want to Tell You

The real reason that the endowment polices have failed, in my view, is that when they were designed by the bright boys in the life assurance industry they had a number of fatal flaws built into them.

Life assurance firms are "experts", so they would have us believe, in risk management. They try to ensure that risks are accounted for, minimised and spread.

What the "bright boys" did when they designed these non performing endowment white elephants, was to spread the risk around the hapless purchasers. They were safe in the knowledge that with 8 million sales, they could spread the risk with little collateral damage to themselves.

They assumed that, in the "unlikely event" that the polices did not perform as well as expected, no one individual would be so out of pocket that they could afford to, or be bothered to complain.

The trouble is, they never bothered telling the hapless endowment policy holder that they were spreading the risk in this manner; nor indeed will they admit to it today.

The other problem is that the polices were very poorly designed; and that the extortionate commission payments extracted from them at the begining, effectively killed the product at birth.

Again, something that they will not admit to.

The final flaw in their great design was the fact that, having spread the risk, with a £40BN shortfall being faced by 8 million people; they know that there is now a massive incentive to complain, yet there is no way that they can ever admit to 8 million people that they were sold "a pup".

Now it is up to the 8 million of us to make them face the consequences.

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