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A consumer&#39s view

Anything that will raise standards in the life and pension business has to be applauded but it is difficult not to view the ABI&#39s Raising Standards initiative as a bit like rearranging the deckchairs on the Titanic.

This week the ABI&#39s “independent” Pensions Protection and Investment Accreditation Board announced the first five brands which have been accredited under the Raising Standards quality mark scheme. The brands which have qualified are Cooperative, Norwich Union, Scottish Equitable, Scottish Widows and Unum.

The first question is, how independent is the PPIAB? It comes under the wing of the ABI which, as a trade association, is entirely dependent on its members&#39 contributions for financial support.

The industry sponsored the consumer research on which the standards are based. But unless the right questions were asked in the first place the answers are going to be at best bland or, at worst, useless.

The Raising Standards committee is chaired by Laurence Churchill of Unum, and sev-eral other CEOs or appointed actuaries from various life companies make up the rest of the members – along with Paul Smee of Aifa. Not a customer representative in sight.

The ABI claims that this is because the consumer bodies approached were prepared to second anyone to the committee.

But all this is splitting hairs. One of the big problems with the campaign is that it does not apply to past products. Life companies can qualify simply on a promise of meeting the new requirements in future – however awful their existing policies may be.

This might result in a “reverse halo” effect. Since there will inevitably be more existing policyholders than new ones for a long time to come, the quality mark might end up antagonising existing policyholders whose policies do not meet these new squeaky-clean standards, rather than reassuring new customers.

Second, the standards are totally product-oriented, when the real fire-fighting in terms of improving the public&#39s perception of life companies as a safe place to invest money is down in the engine room.

Equitable Life had some excellent products. Indeed, you could argue that the guaranteed annuity pension policies were among the best in the marketplace. And there is no doubt that this is a product that the customers needed, wanted and understood. Equitable&#39s guaranteed annuity pension policies would probably have met all three “quality mark” requirements.

Policyholders clearly understood what they where buying and chose Equitable Life&#39s pension policies in preference to those of other life offices. They would have met the need for “clarity and comparability of information” very easily.

There is absolutely no doubt about the “appropriateness of the products” because so many individuals are now fighting tooth and nail to hang on to these extremely valuable benefits.

And so far as “customer service” goes, Equitable would probably have passed muster here too.

But the real damage that needs mending – along with an improvement in products – is the total collapse in consumers&#39 confidence in the ability of life companies to look after their savings safely, efficiently and effectively, producing a reasonable investment return. And who can blame them?

If Equitable&#39s management was capable of writing into the books more than £1bn of GAR liabilities – without ever making provision for them or making a charge to reflect the cost of these valuable options – then what confidence can consumers have in the quality of management, let alone the quality of the actual products?

What is the use of having wonderful products if the management is so bad that the company ends up not being able to meet the promised benefits? This is the customers&#39 real fear now.

And worse is to come. As Ned Cazalet pointed out recently in Money Marketing, the life industry as a whole has only £20bn in the coffers to support with-profits business – down from £130bn in 1999.

What happens if the stockmarket plunges still further, which is by no means scaremongering? Equitable Life will not be the last life company effectively to go to the wall.

Raising Standards is a laudable aim but you cannot blame investors for being more than a little bit concerned about such basics as the safety of their savings.


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