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Evan-sent opportunity

It would be true to say that over the years I have had the odd run-in with Evan Owen of the IFA Defence Union. Two or three years ago, I wrote some pretty uncomplimentary things about him.

However, I take off my hat to him this week, for there is one campaign led by Owen that I have long supported whole-heartedly – forcing the FSA finally to reveal the list of life companies investigated by its predecessor, the PIA, in relation to their use of standard charge projections when setting premiums on with-profits policies.

Some readers of this column will know the issue well. For others, here is a quick recap. When Lautro, the then life companies’ regulator, was set up, it introduced rules whereby illustrations of future benefits on with-profits policies would have to be standardised.

One set of rules related to projected annual growth rates which life companies could give to prospective policyholders. Another much more controversial rule related to charges. What Lautro said was that life companies should use a set of standard charges on all policy projections. These were set at 0.3 per cent a year instead of a more accurate 0.75 per cent. Moreover, the impact of initial charges was ignored altogether.

The result was twofold. First, it allowed those life companies with scandalously high charges to shelter behind those with lower ones. Second, it meant that, in some cases, life companies set their premiums on the basis of projected charge levels that were way below what was actually being taken from policyholders.

The result was that monthly premiums were therefore significantly lower than they should have been. If performance failed to beat expectations by a wide margin, policyholders lost out without even realising it.

In 1991, the PIA found that 11 companies had been engaged in “pre-contractual misrepresentations and in some cases a breach of contractual warranty”. A number of companies were required to pay compensation to policyholders. However, the PIA – and subsequently the FSA – refused to publish a list of which companies had been investigated.

Which is where Evan Owen comes in. For some years now, this has been a bugbear of his. Owen believes that some IFAs may have been forced to pay higher compensation to complainants about underperforming with-profits funds partly as a result of lower premiums being levied in consequence of the use of Lautro projected charges.

So he contacted the Information Commissioner’s Office to ask it to force the FSA to name those life offices under the new Freedom of Information Act. The ICO has now said the FSA must release that information. And by the way, it turns out there were 12 companies involved, not 11 as we all thought.

The matter may now go to appeal and any publication will be delayed by up to 12 months but it should be stated loudly and clearly that Evan Owen has performed a vital service for journalists as well as policyholders, especially if it turns out that some life companies have not paid out compensation along the lines expected by the PIA.

That may well be the case, for there is some dispute as to the way in which life companies approached this issue. To give one example, up to 100,000 Standard Life policyholders took out the company’s Homeplan scheme, whereby standard charge projections were used to set policy premiums.

Standard Life says IFAs could choose the level of premiums their clients should pay. The company told me two years ago: “The Homeplan contract offered some flexibility…at the discretion of the adviser. A high rate of assumed investment growth would result in a lower premium than using a low rate [which assumed] lower risk.”

It seems fairly obvious that most advisers would have been keen to sell the product on grounds of its competitive price and you do not do that by recommending a higher premium than the default.

Yet I have been led to believe that Standard Life is not one of the companies investigated by the PIA. There may be a perfectly good reason for this but we need to be told what that reason is and also which companies were investigated, how much they paid in compensation and what criteria this was based on.

Meanwhile, those of us who work at the coalface of financial services journalism owe Evan Owen a huge debt.

Nic Cicutti is the editor of moneysupermarket.com. He can be contacted at nic.cicutti@moneysupermarket.com

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