When the insurance industry was unfettered by regulation of any kind and proclaimed to operate on principles of utmost good faith, the perception was that it was desirable to “get the strength of the insurance companies around you”. Remember the advertisement?
Endowments were the recognised way to provide for the eventual payment of homeloans and other significant events such as school fees, weddings and 21st birthdays.
Then the world entered the quizzical era. Nosy people wanted to know how much it actually cost and how much was being charged – and where the tiny rounding-up or rounding-down margins went.
Soon, the new spotlight began to illuminate dark corners, which revealed large-scale bleeding of funds (for example, IOS among the life companies and BCCI).
Less clearly on view were the misselling practices such as churning endowment policies.I recall lenders refusing to accept existing endowment policies because “they did not meet their criteria”, forcing borrowers to take out new policies – abandoning the old ones at considerable loss to themselves.
Whether it was shame or fear that something really Draconian would be forced on the industry, a burst of activity followed publication of the Gower report and self-regulation (flagellation) was born.
Had there been a more considered and sedate approach to regulation, we might not now be experiencing the bedlam and continuous proliferation of regulations and regulatory quangos. The latest one is to be called Namby, for the newly created “special” providers of mortgages. Didn't we all do mortgages for our clients as part of our services?
I believe the early efforts at regulation set the pattern. Instead of reining in the delinquent creativity of product providers, some of whose schemes teetered on the brink of “scams” (home-income plans), the full glare of public opinion was directed towards the retail end of the business.
Of course, there were whole colonies of cockroaches scrabbling about peddling inappropriate products to the hapless buyers of financial products.
The infamous pension misselling scandal has its roots in a multiplicity of growbags. The prime culprit was the Government of the day urging people to break free of the chains of company pension schemes and set up personal pensions. Warnings from industry practitioners were ignored when it was pointed out that the message was being misinterpreted by the industry with wholesale transfers and opt-outs being conducted. Such was the confusion and skulduggery that took place under the very noses of the newborn regulators.
The more scandals that came to light the louder were the cries for more drastic measures to regulate the retail sector. Huge numbers of small businesses went to the wall and petty bureaucracies flourished in the steamy backrooms where battle-weary consumer groups bamboozled by wily politicians and power-hungry aspiring regulators clamoured for the Government to take a positive role in the long overdue counter-assault on the”financial hoodlums”.
The squeeze was on and the noose was drawing tighter. Businesses were being burdened with increasing volumes of red tape and weighty tomes masquerading as the new 10 principles.
A new breed of parasite had arrived. Now investors would not lose their money through misselling or malpractice, they would lose money in the legitimate above-board squandering of vast sums of money maintaining the proliferation of regulatory fat cats. Benefit-related pension schemes and salaries that are often higher than earnings of the hard-pressed “regulatees”.
And, of course, there are the golden payoffs to chief executives whose regulatory tenure was rudely interrupted by changing moods of the Treasury – whose intrusion into the arena has brought with it even greater extravagances and a now familiar but increasingly detrimental flavour to consu-mer protection.
Will it change? Not a hope in hell. They have tasted blood. It is sweet and there is plenty of it.
Capital Financial Services, Bexhill-on-Sea
Get out of the pocket of the providers