The List of Shame

The List of Shame

Congratulations to Money Management magazine for naming and shaming the insurance companies and endowment providers, who tired to hoodwink their customers, that the Financial Services Authority (FSA) tried to cover up.

When these shamed companies sold their products to their unsuspecting customers they used industry standard charges laid down by Lautro, the industry regulator at the time, to show the returns etc that would be expected on the policies..

However, their actual charges levied by these shamed companies were often much higher sometimes double the Lautro rate. Needless to say, they chose not to tell their customers this. This shoddy practice took place between 1988 and 1995.

It is estimated that around 200,000 policyholders, with low-cost mortgage endowments, could be owed up to £200m by these companies as a result of this practice.

The list of shame includes:

-Standard Life
-Pearl
-Axa
-Scottish Widows
-Prudential, owned Scottish Amicable
-Scottish Mutual
-Scottish Provident, now owned by Resolution.

Companies were taking up to 0.75% a year in charges from the fund. However, their customers were given the impression that the charge was only 0.3% (ie less than half).

Some companies, including Axa, Legal & General and Clerical Medical, have set aside money to make good these shortfalls. Others, such as Standard Life, have so far refused.

Shoddy practice by a very shoddy industry, and a disgraceful attempted cover up by a toothless partisan FSA.

It is hardly surprising that the British consumer has lost all faith in the financial services industry.

The List of Shame

The List of Shame

Those of us who are unfortunate enough to have bought an endowment policy in the late 1980's and early 1990's may find an analysis produced by Money Management to be of interest.

It shows that, despite rising stock markets, payouts to policy holder continue to fall in most cases.

They compared policies maturing in 2007 with those maturing in 2006, for a male non smoker investing £50 from the outset over 25 years. The variation in returns was staggering. The average growth rate was 8.5%.

The top performer was Reliance Mutual with a return of 13.6%. However, the laggards showing below average returns were as follows (%):

Norwich Union - 8.3
Canada Life - 8.3
CGU - 8.2
General Accident - 8.2
Brittanic Assurance - 8.2
Clerical Medical - 7.9
Legal&General - 7.7
Scottish Widows - 7.3
Scottish Life - 7.2
Standard Mutual - 6.8
Scottish Mutual - 6.8
Friends Provident - 6.7
Equitable Life - 6.5
Eagle Star - 5.7

Well done!

The key question that policy holders should be asking of their endowment company, if they are in one of the under performing ones, is why are your returns worse than others?

Does that not reflect badly on the quality of management, and on the charges levied against the fund?

Time Bar To Bring Chaos

Time Bar To Bring Chaos

Life assurance companies, who sold underperforming and useless endowment policies to 8 million home owners, are using a number of methods to reduce the claims being made against them for compensation.

One such method is the time bar, whereby claimants are given a deadline to complain or lose their right to do so for ever.

This neat little trick is allowed by the Financial Services Authority (FSA), which said that an insurer may disregard a case for mis-selling three years after a policyholder receives the first "red" letter warning that an endowment has a high risk of not meeting its target.

Needless to say, there is now a deluge of complaints swamping the system.

Many hundreds of thousands of red letters were sent out in early 2003, this means that the deadline is now fast approaching for these people to make a claim.

The deluge has been further exacerbated by the fact that the FSA has told the life assurance companies that they must remind people 6 months before the final deadline, as to their right to make a claim.

Needless to say the life assurance companies and the Ombudsman will be hard pressed to cope with this deluge of complaints.

It has taken me over two years to reach the final stage of my claims which, for the record, were both rejected.

Simply put, the system can't cope!

This problem is exacerbated by the fact that, according to Chief Ombudsman Walter Merricks, 45% of endowment mis-selling cases were upheld by his office after being turned down by life companies.

These companies are reportedly issuing time bars:

Norwich Union - it has 1M endowment policyholders. It began warning of a time bar last October, giving 12 months' notice.

Standard Life - it has 1.2M endowment policyholders. It will write to customers in coming weeks to remind them about its deadline, giving 12 months' notice.

Royal & SunAlliance - it has 450K policyholders. It began reminding policyholders about time-barring last May and gives policyholders six months to complain after a second red warning letter.

Allied Dunbar/Eagle Star - it has 100K policyholders. Policyholders have 12 months to complain after receiving second letter.

Friends Provident - it has 450K policyholders. They have imposed a three-year time bar after policyholders receive their first red letter.

Pearl/NPI/London Life - it has 100K policyholders. Time barring applies three years after the first red letter.

Axa - it has 160K endowment policyholders. It introduced time-barring last month and is writing to customers giving 12 months' notice.

Scottish Widows - it has 165K endowment policyholders. It introduced time-barring in February, giving customers 12 months to complain after receiving their second red letter.

Good luck!

Abbey's Curate's Easter Egg

Abbey's Curate's Easter Egg

Abbey has presented its with profits policy holders with something of a curate's egg for Easter.

Despite benefiting from improved investment performance on with profits funds, Abbey will pay no annual bonuses on Scottish Provident, Abbey National Life and Scottish Mutual policies.

How nice of them!

However, they are going to reduce Market Value Reductions (MVR's), the penalties for early surrender, for some policyholders and reintroduce terminal bonuses on some long-term policies.

Abbey's Scottish Provident fund had a return of 10.5% last year, with Abbey National Life and Scottish Mutual showing 9.5% for the same period.

MVR's have been reduced by 6%. As noted, there are no annual bonuses declared for 2004, except where the policies carry guaranteed bonuses.

Scottish Mutual's traditional 25 year maturing endowments now pay a terminal bonus of 30%, an increase of 5%. The 15 year policies now receive a 5% terminal bonus, no change on the previous period.

Abbey National Life 10 year pension plans receive a 5% terminal bonus, introduced for single premium policies, and 1% for regular premiums. Scottish Provident?s 20 year endowment terminal bonus goes up from 0% to 7%.

These "improvements" are on the backs of large cuts in the past. So don't bother getting the champagne out!

At this rate, if MVR's continue to decline, investors will at least be able to take their money out and put it somewhere more useful instead.

At the end of the day endowment policy holders are being screwed left, right and centre!

I understand, from Reuters, that Abbey National says it will not pay bonuses on most with-profits insurance policies for a second year.

It blames declines in the stock market.

Abbey said on Monday that 850,000 customers of its Abbey National Life, Scottish Mutual and Scottish Provident units would get no pay-out.

So much for the phrase "with-profit"!