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Breaking point for ABI

My initial reaction when I read that the Association of British Insurers has advised the Government that the industry is not capable of running auto-enrolment included some colourful language which is not appropriate for the pages of Money Marketing.

Having had the chance to reflect on the matter, I have concluded this should be seen as the straw that breaks the camel’s back, the final proof that the ABI is no longer fit for purpose and that, in the interests of the industry (and consumers), the trade body should be shut down as soon as possible.

The ABI was, after all, pretty much the main lobby group that precipitated the retail distribution review.

Undoubtedly, one of the main losers out of the RDR will be the traditional life and pension providers. They will be shorn of so much of their historic distribution and are already increasingly becoming commoditised suppliers of product wrappers as a direct result of their trade body’s failure to grasp the unintended consequences of their actions. This alone should be sufficient reason to sack the whole sorry crew.

With its latest pronouncement, the ABI has effectively told the Government and anyone else listening, that the life and pension industry is not as capable at running pension schemes as a Government quango. How the champagne corks must have been popping at the Investment Management Association when they read that one. To be fair, the IMA has consistently shown themselves to be a vastly superior lobby group on the subject of personal accounts, compulsion, Nest or whatever other label you care to put on it.

Contrary to ABI opinion, I believe the life and pension industry employs some very smart, creative people with an excellent grasp of the commercial practicalities of the 21st century and is entirely capable of creating solutions to meet the needs of the most disadvantaged employees in society.

Undoubtedly, as Nest has already made clear, such solutions will need to be heavily technology-based.

To address the issue of cost-inefficient schemes, we may, as an industry, need to create a charitable trust to subsidise these. The cost of running the trust might be spread fairly across the industry in proportion to the level of corporate pension business written.

The alternative is to have Nest cream off many of the most profitable schemes in the market, to the detriment of the investing members of such schemes, in order to balance their books.

This is just one idea, I am sure as an industry we can come up with many others.

Compulsory contributions are the best opportunity we have had for decades to demonstrate to consumers the value that pension providers can deliver. It should not be squandered just because minds at the ABI are too feeble to come up with the right creative solution for the electorate.
The ABI has a ruinous effect on the relationship between life offices and IFAs. Every time the ABI comes out with another anti-adviser statement, platforms, which see the adviser as crucial to their development, become more attractive to advisers.

Disintermediation may have been the name of the game in the general insurance market for the last decade but it is not the way that most life offices think, so why do they allow their trade body to pursue such a course?

Another area where the ABI has conspicuously failed to deliver any benefit is the revised growth rates the FSA is requiring now be used for illustrations of benefits for certain asset classes.

As a result, insurers are now adopting a wide range of different solutions to address this issue. The net result will be significant additional work for advisers, a lack of clarity for consumers and, before too long, the need for additional quotation and comparison services that will cost insurers several millions of pounds a year to run – and that is the best-case scenario.

We might already be seeing the foundations being laid for the next misselling scandal, which will have been manufactured by the FSA as a result of the regulator’s ignorance and intransigence.

I am already hearing anecdotal evidence emerging of behaviour along these lines. This could have been avoided if the insurers’ trade body was up to the job. Others will need to act quickly to avoid disaster.

I am also coming across serious disquiet among protection advisers at the way the ABI is maintaining criticalillness definitions. It is only a matter of time before there is a move to wrest this role back to the adviser community which, after all, is responsible if questions arise over risks being insured.

The above represent just a few examples of the incompetence that has become the hallmark of the ABI.

The right course of action is the replacement of the ABI by a new body more attuned to the commercial realities of the modern world. The ABI is a 19th century operation representing one of the UK’s most important industries of the 21st century. The life and pension provider community deserves first class, modern representation.

The ABI survives, in no small part, because many of the people involved in key parts of the governance process have more important day jobs to focus on, so achieving the consensus to close them may be difficult if not impossible.

Each individual life office could, however, decide unilaterally to withdraw from membership of the ABI.

At this time, I believe this is the strongest possible demonstration of commitment any life office, especially those with platforms, could send to the adviser community.


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There are 4 comments at the moment, we would love to hear your opinion too.

  1. Hear Hear!

    I could add in the infamous ABI RDR response where the domination of the IFA sector in consumers eyes was referred to as ‘A Problem’!

    And at the same time requesting permission to relaunch Direct Sales forces with uncapped products and low compliance standards. You could not make it up!

  2. I wonder if what Ian describes is just another example of “evolutionary change” within the financial services sector. A natural part of evolution is that extinction will occur amongst those participants who are not capable of change, in this case the “traditional life and pension providers”

    The IFA flight to the platform providers must partly be as a result of the inability of these traditional providers to compete effectively for business other than through the commission mechanism. Presumably the reason why some traditional providers have re-invented themselves as platform providers is that they were bright enough not just to see the writing on the wall but to actually to read it as well.

    IFAs know that one key objective of the traditional product provider has always been the desire to achieve distribution channel control. Now that the ABI has realised that its members will never be able to achieve that control over IFAs perhaps they should be complimented for recognising it rather than attacked?!!

    The ABI and its members have never had the symbiotic relationship with the IFA that they thought they had.

    It would be interesting to hear from the ABI though where they believe they have added some value to the IFA community

  3. Perhaps the ABI isn’t backwards, perhaps it has simply recognised the way that the market is going. If post RDR whatever is left of the independent sector become more and more reliant on wraps/platforms etc then the life companies will simply look for distribution elsewhere. So FP will go to Tesco’s to sell protection, the Pru tie up with Santander, AXA with the West Bromich etc. These are much better relationships for the Life companies as they don’t have a load of opinionated owner managed IFA’s to deal with and only need to set things up on a national accounts basis and arrive with a metaphorical wheel barrow to pick up the application forms. win win for all concerned (apart from the clients probably, but RDR was never about the anyway).

  4. Every industry experiences change over time. The ABI predominately serves the interest of Insurers. The ABI and insurers need to realise that their future role will be different. I believe that some will just shut up shop in the UK and look for profit in other countries.

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