New Rules

New Rules

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

The rules will come into effect on June 30th.

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.

Quote:

"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..".

Form Filling

Form Filling

I finally got "off my backside", and filled the form that I received from the Financial Ombudsman Service the other day.

This form relates to my complaint against my life assurance company, for not providing me with details of commission payments made on my two endowment policies as requested back in November.

The wheels of justice turn slowly!

Fallout

Fallout

The Financial Services Authority (FSA) is reported to be conducting an internal review of its investigations and enforcement operations, after the financial services and markets tribunal overturned its £1.1M fine on Legal & General (L&G) for endowment mis-selling.

The FSA is expected to appoint one of its top officials to lead the review.

The Dead Hand of Bureaucracy

The Dead Hand of Bureaucracy

The Financial Ombudsman Service (FOS) wrote to me today, in respect of my complaint against my life assurance provider not answering my query about commission payments on my two endowment policies.

The FOS will deal with my complaint; however, they need me to fill in a form.

Needless to say, the form requires me to regurgitate details that were already included within my original letter sent to the FOS.

The ways of the bureaucrat are indeed mysterious to behold!

No matter, a small delay of a week, is nothing in comparison to the 2.5 years I have spent on trying to claim redress.

Tick Tock

Tick Tock

Time is running out for the hapless holders of underperforming, and useless, endowment mortgages to complain over mis-selling.

The life assurance companies will be writing to their policy holders in the coming months, warning them that they have a limited length of time left to complain.

After that, tough luck!

It is reported that Standard Life and Lloyds TSB will shortly be starting their mail shot about this issue.

Norwich Union, will be writing to its 1.1m endowment policy holders in March, reversing its earlier commitment not to impose a time bar.

How nice of them!

Friends Provident and Zurich will also be writing to their policy holders.

Some will allow 6 months to complain, others 12.

The Financial Services Authority (FSA) rules give policyholders three years to complain, after the arrival of an initial letter warning that an endowment has underperformed.

Out of the large firms, only Legal & General and Prudential have not imposed time limits on complaints.

L&G Puts The Boot In

L&G Puts The Boot In

It is reported that David Prosser, CEO of Legal & General (L&G), has demanded changes to the Financial Services Authority's (FSA) disciplinary procedures.

This is in the wake of the partly successful appeal by L&G, against the FSA fine of £1.1M for endowment policy mis-selling by L&G.

Prosser asked for greater independence in the FSA's regulatory decisions committee (RDC), that is the body that considers recommendations made by the regulator's enforcement staff.

Currently the chair of the RDC is an FSA employee.

It is reported that L&G may ask the Financial Services and Markets Tribunal to enforce these changes.

Norwich Union Cuts Payouts

Norwich Union Cuts Payouts

Norwich Union gave 1M holders of its with profits endowment policies a kick in the teeth yesterday.

It announced that it would be cutting payouts on maturing, longer term, policies by up to 11%.

The cuts are in spite of an investment return of over 11% before tax in 2004.

Norwich Union did at least try to ease the pain, by announcing that it has put aside £1BN to help its policy holders stuck with an underperforming endowment policy.

Mike Urmston, the chief actuary at Norwich Union Life, is reported to have said:

"The last two years of positive returns have not compensated for the negative returns of the previous three years."

Norwich noted that its maturing 25 year mortgage endowments are producing surpluses, over and above the target amounts. However, its 15 year mortgage endowments are falling short.

The company has reduced its exit penalties, that are charged when people cash in their policies early or move their money to other insurers, to a rather high 18%.

Score Draw

Score Draw

The Financial Services and Markets Tribunal (FSMT) issued its judgement in the Legal & General (L&G) vs Financial Services Authority (FSA) case.

The FSMT yesterday cleared L&G of wide-spread mis-selling of endowments, it noted that only 8 out of the 152 sales reviewed could be proven to be mis-sold.

The Tribunal also noted that the £1.1m fine imposed by the FSA should be reduced, and said a further hearing will be held on this issue.

It noted that ruled that the FSA had been "in error in its approach to the mis-selling case", adding that its conclusions were "not justified by the material before it".

The case has ended up costing L&G more in legal fees, than it will save through a lowering of its fine.

Needless to say both L&G and the FSA are claiming victory.

Whether this ruling helps the 8 million hapless holders of these underperforming, and useless, products remains to be seen.

Judgement Day

Judgement Day

Today is judgement day in the battle between the Financial Services Authority (FSA) and Legal and General (L&G).

The Financial Services and Markets Tribunal will rule in the appeal made by L&G, over the FSA's fine of £1.1M for mis-selling endowment mortgages.

Smart money in the City is on the tribunal giving the FSA a "drubbing" over it's role in this case, and in the manner in which it decided on the fine.

A partial victory for L&G would severely damage the FSA, and open the gates for others to appeal their fines.

Backlog Developing

Backlog Developing

It seems that there is quite a backlog of endowment mis-selling cases piling up, at the Financial Ombudsman Service (FOS).

These cases are now likely to take a year or more to resolve. The FOS had budgeted for around 35000 cases, but now believes that it will be dealing with 67000.

The FOS has hired 200 new adjudicators in 2004, but that does not seem to be enough to cope with the increased number of complaints from people holding useless and underperforming endowment policies.

The FOS is pretty "pissed off" with the endowment providers, and believes that they are not co-operating with the FOS adjudicators.

It seems that there are 10 well known trouble making life assurance companies, who simply reject consumer complaints out of hand. These rejected complaints then land on the desk of the FOS.

It seems that these 10 naughty companies don't even bother to investigate the complaints, but are happy to let the poor consumer wait in limbo for 8 weeks (the FSA time limit) before telling them that their complaint is rejected.

Nice trick guys!

I am pleased to note that the names of these 10 companies have been passed on to the FSA, for fines.

It would be even better, if the names were released to the media; thus "naming and shaming" these companies as well.