ABI Displays Empathy

ABI Displays Empathy

In a rare display of public empathy, the Association of British Insurers (ABI) says that life companies must do more to design products with consumer needs in mind.

ABI head of distribution policy, Peter Jolly, said that life companies have failed to properly engage with consumers.

"I guess the evidence of that is we need to sell them. If we had products that people really wanted they would come and buy them and most of the products in our industry are designed to be sold, rather than bought.

And the industry's failure to develop a new regular premium savings product is probably evidence of that. As the endowment market tailed off we don't really have a replacement."

LOL!

The endowment market "tailed off" because it was a lousy product, not fit for purpose and badly managed.

Things Will Only Get Worse

Things Will Only Get Worse

Those of you who hung onto a flimsy straw of hope that the recent rebound in the FTSE may help draw a line under your collapsing "with profits" (such a misnomer for such a lousy product) endowment policy, need to read this article in The Times.

The bottom line is that the returns will worsen, and that the life assurance companies will continue to cut bonuses.

Either way, in good times or bad, the policy holder picks up the bill for the failures of these useless products and the conmen who sold them to you.

We need a class action to bring these companies to heel!

99% Shortfall

99% Shortfall

This Is Money reports that a staggering 99% of endowment policies will fail to pay off the mortgages which they were designed to cover.

With over 4.3M policies still in force this means that millions of people will be affected by the failure of these useless products.

The FSA and the life assurance companies that "manage" these failed products continue to hide behind the excuse that, as they are investments, the consumer knowingly accepted the risk that they might not cover the mortgage.

This excuse is not valid, as the life assurance companies told the hapless consumer that they were designed to pay off their mortgages. Why else would anyone have bought these products if they were not going to fulfil their primary function of paying off a mortgage?

The fact 99% of them will fail to do this is proof that the product was poorly designed, and continues to be atrociously "managed" (eg why do life assurance companies continue to milk the policies of commissions, when they have demonstrably failed?).

The consumer has been ripped off by the life assurance industry, and left to rot by the FSA.

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Lost The Plot

Lost The Plot

The FT is suitably scathing about the FSA decision to kowtow to the insurance industry wrt compensation payments for mis-selling endowment policies.

"So FSA has bottled it once again. Faced with pressure from the insurance industry, they have backed away from fully enforcing a ban on using policyholders' money to mis-selling bills.

The decision appeared in document CP 09/09: "Proprietary firms will no longer be able to pay compensation and redress payments from their with-profits funds, where they arise out of events that occur after the rule takes effect. The position in relation to events prior to the effective date will be unchanged."

So any compensation or redress from new mis-selling cannot come from the with profits fund, but for all past misdemeanours they can still raid policyholders' cash.

The Financial Services Consumer Panel describes this as a "backward step" and says that "having uncovered unfairness, the FSA should resolve it".

Predictably, the FSA has allowed intense lobbying from the powerful insurance industry to override consumer fairness. Reading through the comments from respondents in this consultation paper illustrates how many insurance companies are still living in the dark ages.

Some argued that policyholders have no interest or rights in any inherited estate that might exist in with profits funds. Others referred to previous consultation papers without appearing to have noticed that these have been overtaken by clarifications and later statements.

So once again the dinosaurs have outwitted the FSA and consumers will be left to pick up the bill as insurers continue to raid their savings to pay mis-selling bills."

Market Falls

Market Falls

It should come as no surprise to anyone with an endowment policy that the ongoing falls in the stock market will negatively impact the returns on the already poorly performing endowment policies.

However, another issue that may also affect returns is the level of involvement by the life assurance companies in complex financial instruments (eg credit default swaps).

Exactly how exposed are the life assurance companies to these instruments, and what effect will that exposure have on the stability of the endowment policies managed by these companies?

Pass The Parcel

Pass The Parcel

The endowment scandal has created a legal version of pass the parcel as policyholders claim damages from those who mis-sold these useless products and they, in turn, claim damages from insurance companies etc.

Legal Week recently reported that Reynolds Porter Chamberlain (RPC) is facing a multimillion-pound negligence claim relating to its involvement in a case brought by Standard Life.

Standard Life Assurance recently won a case against AON, and stands to be awarded up to £75M.

Aon has brought its own negligence claim against RPC, as a third party to the proceedings, and a second trial will now take place to decide whether or not the firm was negligent.

Aon's claim against RPC argues that the firm did not recognise that the wording of the policy meant claims could not be grouped together.

Now don't you think that all this trouble, time and expense could be avoided if the life assurance companies simply underwrote these useless, underperforming and badly managed polices?

Sauce For The Goose

Sauce For The Goose

It is refreshing to read for once a story about a life assurance company suing a broker for mis-selling, rather than an endowment policy holder suing a broker or life assurance company.

In this particular case Standard Life sued brokers Aon for advising it to take out the wrong indemnity insurance, to cover claims for mis-selling of mortgage endowments policies.

I would venture to suggest that had they not mis-sold the policies in the first place, they would not have needed to take the cover out!

Standard Life won the case and stands to gain £75M, the final amount will be determined at another hearing.

The judge ruled that Aon had been negligent, as no reasonably competent broker could have concluded that Standard Life's needs were clearly met by the policy.

I can't but help feel a small amount of shadenfreude over this.

Now at least one life insurance company may know what the millions of us, who were sold these useless underperforming endowments, feel like.

FSA Bends In The Wind

FSA Bends in The Wind

The Financial Services Authority (FSA), has given discounts of £4M on fines imposed on banks, building societies, mortgage firms and stockbrokers over the past year.

The firms (eg Nationwide, Capital One and Norwich Union) had been found guilty of serious rule breaches ranging from mis-selling of payment protection insurance (PPI) to failing to adequately safeguard the personal details of customers.

The discounts offered are in the region of 30%, in return for promising to co-operate and not challenging the FSA's findings at tribunal.

Which? is far from impressed, and accuses the FSA of "putting the interests of the industry over those of consumers".

The FSA has decided to bend in the wind as a result of the fight it had with Legal & General in 2005, over its endowments mis-selling case.

L&G successfully appealed against the size of the fine imposed on it.

The FSA is showing excessive weakness, it neglects the fact that were a firm to complain about the size of a fine it would receive an enormous amount of negative publicity during the tribunal.

By offering such large discounts, the FSA has let the insurance and banking industry have its cake and eat it.

Calls For £100K Limit To Be Scrapped

Calls For £100K Limit To Be Scrapped

IFAOnline reports that the Financial Ombudsman Service (FOS) has been told by the All Party Parliamentary Group on Insurance and Financial Services (APPGIFS) to scrap or substantially raise its £100K compensation limit.

APPGIFS says the existing limits on awards, that were established over 25 years ago, have not increased in line with financial transactions carried out by retail and small business customers.

The FOS has been heavily involved in the endowment policy scandal.

Norwich Union's Sleight of Hand

Norwich Union's Sleight of Hand

It seems that Norwich Union is planning an interesting use of £150M of its inherited estate (orphan funds), which in theory are meant to be for the benefit of its policy holders.

Norwich plans to use £150M of £5BN surplus assets to pay for claims made against the company.

Currently Norwich Union is in the process of re attributing the funds to with-profits policyholders and shareholders, which is perfectly reasonable. However, Which? has warned that £150M has been designated to pay for past mis-selling.

It should be noted that the Financial Services Authority (FSA) does allow money in with-profits funds to be used in a number of ways, including settling compensations claims. It is considering a change in its regulations.

However, it seems to be rather "sharp practice" to use policy holders' money to pay for mis-selling perpetrated by the company that claims to be acting in the interest of the policy holders.

Which? is of the same opinion, and has quite rightly threatened to take the matter to court.

Norwich Union is negotiating the re attribution of the £5BN surplus, and also wants to use some of the money to finance business expansion; which also seems to me to be taking a liberty with policy holders' funds.

Dominic Lindley, financial policy adviser to Which?, is also claiming that billions of pounds of with-profits money has already been used by insurance companies to pay for the mis-selling of endowments and pensions.

What are the FSA doing about this?

Why do they sit on their hands and allow companies, such as Norwich Union, to get away with this?

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.

Making Money on Endowments

Making Money on Endowments

The Telegraph has a good article explaining how it is possible, if you are well briefed and prepared to take the risk, to make money on endowments by investing in Teps (Traded Endowment Policies).

There is also a novel bonus, if you get the right policy, of earning a nice little lump sum if the original owner of the policy dies.

Quite:

"Life insurance is sold as part of an endowment policy; when a Tep is sold on, that insurance still covers the person who initially held the policy. But any payment made as a result of that individual's death will be paid into the Tep, says Modray.

It is not necessarily a palatable way of making returns, but a "deed of assignment" when the policy is sold will ensure that the money is added to the fund if the original policyholder dies."

The lesson here is that there is always a way to make money; if you are brave, lucky and well advised.

Time Bar Challenge

Time Bar Challenge

BrunelFranklin.com and CPH Financial Service have launched a legal challenge against the practice of endowment providers using a timebar to prevent claims being made for underperforming endowment policies.

Brunel and CPH have made a request for a judicial review, to establish if setting a time frame in which a complaint must be registered is fair and legal.

At present, endowment providers can "time bar" a complaint if the consumer makes the claim more than three years after they first receive a letter warning them of a "high risk" of shortfall on their policy.

Firms must also send out a "red letter" six months before the deadline, informing the consumer of the impending date.

It is estimated that the number of people affected by time barring exceeds 2 million.

Ian Allison, corporate relations director at BrunelFranklin.com, said:

"This is a very exciting day for us all.

We have been aggressively lobbying against time bars for three years and we are now reaching a point where there is a serious chance of a positive outcome for all those people who have been time barred.

We have always believed the time bar process and the communications with consumers was wrong and fundamentally flawed.

Many customers never received shortfall letters. For those that did, the letters never mentioned the issue of a mis-sale.

The use of these letters therefore to legally start the time bar clock ticking is a disgrace. This was never fair and we believe a judicial review will find in favour of the consumer."

I wish them well with their challenge. The fact remains that the insurance companies will do whatever they can, to avoid taking responsibility for the endowment mortage scandal.

The Cost of The Endowment Scandal

The Cost of The Endowment Scandal

The endowment mortgage scandal continues to ratchet up costs.

The Financial Services Compensation Scheme (FSCS) said that it handled 31,260 claims during the year to the end of March 2007, 21% more than during the previous 12 months.

FSCS said that 90% of the new claims it received related to endowment mortgages, with people unable to claim compensation for being mis-sold one of the mortgages because the firm or intermediary they bought it from had wound up.

Around 50% of those who complained about their endowment received compensation, getting an average of £1,900 each.

Overall the FSCS paid out £149M in compensation, around £66M of which related to claims about general insurance, with the rest going to claims over endowments, personal pensions and other investment issues.

The costs will continue to mount.

Bad Management and Inept Regulation

Bad Management and Inept Regulation

A recent article in the Daily Telegraph about the ongoing endowment scandal, hits the nail firmly on the head when it comes to the question as to why these useless products have performed so badly.

Answer:

-Bad management from the insurance companies

-High costs levied by the insurance companies for their bad management

-Inept regulation from the FSA, forcing the insurance companies to invest in under performing assets.

No wonder the hapless endowment policy holders feel that they have been screwed!

Gherkin To Gobble Up Pru

Gherkin To Gobble Up Pru

It is reported that Swiss Re, the Swiss financial group known for the Gherkin in London, is to buy a large part of the UK operations of Prudential for around £5BN.

Swiss Re is reported to have offered to buy the closed life fund business of Prudential. The closed funds contain existing insurance policies, but no longer have new policies added to them.

The approach was made last month on the heals of Mark Tucker's, the CEO of Prudential, plans to shake up the Pru's underperforming UK operations.

Prudential's UK closed life book includes with profits policies and endowment mortgages. The value is estimated to be around £5BN.

The approach has raised questions about the Pru's commitment to Britain. There are rumours that some investors are keen for Tucker to scale back in Britain and concentrate on the faster growing business in Asia and the US.

The sale would give the Prudential £1.5BN. The value of with profits policies is split between shareholders and policyholders. Under the sale of a with profits business, shareholders receive a lump sum to account for the future profits they would have received from the policies.

Swiss Re has bought a series of closed life funds in America, and in Britain it bought Life Assurance Holding Corporation.

Nice to see that someone can make money out of the useless and underperforming endowment policies that were foisted on the unwary British public in the 1980's.

2006 Statistics

2006 Statistics

According to the 2005/06 annual review from the Financial Ombudsman Service (FOS), mortgage endowment complaints have fallen very slightly. However, insurance-related disputes are on the increase.

The total number of new cases considered by the Ombudsman in the year ending 31 March 2006 across all financial products increased to 112,923 from 110,963.

New mortgage endowment cases, which accounted for 61% of the total, dropped very slightly from 69,737 at 31 March 2005 to 69,149 a year later. This is the first time the FOS has recorded a decrease in complaints about these useless products since 2003/04.

Hardly a dramatic fall though, and indicative of the sorry regard with which the British public hold the life assurance industry.

Prudential Time Bar

Prudential Time Bar

The Prudential is, according to the Association of British Insurers (ABI), the last major life assurance company to introduce time bars to their endowment policy holders wishing to complain about shortfalls on their endowment policies.

The ABI last year estimated that around 2.7 million households in Britain have an endowment policy that is needed to pay off all or part of a mortgage, and that over 80% face a shortfall.

ABI spokesman Malcolm Tarling said that:

"Time-barring will help focus people's minds. The longer people wait to file a legitimate complaint, the harder it is to establish the facts."

The Prudential says that it will write to 110,000 customers to tell them about the new, six-month deadline for complaints.

Legal & General and Nationwide Building Society have also introduced time barring in the last two months.

Not surprisingly the insurance companies want to bring the matter to a close, as they are the ones who are being hit by the claims from their endowment policy holders.

This sorry pathetic mess could be sorted out at the stroke of a pen, if the insurance companies acted responsibly and underwrote these useless underperforming products which they foisted on the British public back in the 1980's.

Royal Liver Fined

Royal Liver Fined

Royal Liver, the Liverpool-based mutual life insurer, has been fined £550K by the Financial Services Authority (FSA) who judged it to be guilty of mis-selling with-profits savings policies to thousands of its elderly customers.

The policies were bundled together with life insurance contracts, which were not suitable for the majority of customers.

Some customers ended up getting back less from their policies than they had put in!

Margaret Cole, the FSA's director of enforcement, said:

"This was a serious case of mis-selling, particularly as a significant number of Royal Liver Assurance's customers were nearing retirement age and did not need the cover they were sold.

The failings were systemic and arose from weaknesses in the firm's sales and compliance processes and persisted over a long period of time. Firms must make sure that they take account of all products which may be suitable when making a recommendation."

Royal Liver said in a statement:

"The relevant contracts were withdrawn in the UK in 2004 and all policyholders affected have been contacted and offered a full refund of premiums plus interest at an appropriate rate.

Royal Liver has worked closely with the FSA on this issue to ensure that the appropriate lessons have been learned and controls have been strengthened as a result."

Is it any wonder people don't trust the life assurance industry?