The Financial Services Authority (FSA) has proposed that insurance companies should no longer be able to use surpluses from their with-profits funds to compensate customers who have been mis-sold endowment policies.
Many of the claims for mis-selling of endowment policies have been settled using with-profit surpluses and returns on the retained funds.
Under existing FSA regulations, compensation and other business costs can be met from orphan funds, which are eventually reattributed to policyholders and shareholders, normally at a ratio of 90-10 (policyholders to shareholders).
However, the proposals for the reattribution of Norwich Union's £2.6BN has brought down a deluge of criticism on the heads of the FSA and life assurance companies for the use of retained funds in this way.
Clare Spottiswoode, the policyholder advocate in this case, has described Aviva's (owners of Norwich) proposals and the FSA regulations as unfair to policyholders.
The proposal by the FSA may be a step in the right direction, if it is implemented.