The Financial Services Authority (FSA), has issued final rules and guidance to help ensure that with profits policyholders are treated fairly.
The rules are intended to increase the transparency, and accountability, of the life assurance industry. The rules cover ao:
- The costs charged to a with profits fund, by the firm managing the fund
- Penalties levied on policyholders, who surrender their policies early
- The need for funds to be managed, to ensure maturity payouts fall within a target range set for the fund
- The requirement that information be presented to policyholders, or potential policyholders, in a format they can more readily understand
- Firms must provide information to with profits policyholders within 28 working days of a decision to close a fund to new business
- A policyholder advocate will be appointed to protect the interests of policyholders
Mick McAteer, principal policy advisor at Which?, believes that these rules represent a retrograde step; he argues that they put even more power, and discretion, into the hands of directors.
He goes on to point out that directors will be able to carry on protecting shareholder interests, by using with profits funds as a slush fund to pay compensation costs.
"With profits policies which are still one of the riskiest products people can invest in. The FSA has done nothing meaningful to ensure that firms spell this out. Neither have they provided the necessary checks and balances to ensure that directing minds in the sector put consumers' interests on the same level as shareholders..".