View more on these topics

FSA confirms future ban on using inherited estate for misselling claims

The FSA has confirmed that life insurance companies will not be able to pay future compensation and redress payments out of the inherited estates of their with-profits funds.

Any liabilities arising from misselling complaints or other operational failures will have to be borne by shareholders rather than policyholders from July 31 onwards.

Under current rules, life offices can pay compensation out of the inherited estate of its with-profits fund but for policies sold after July 31 they will no longer be able to do this.

In June 2008, the FSA proposed they would change the rules for all payments made after 1 November 2008, regardless of when the misselling occurred.

In a consultation published in February this year, the FSA went back on the original proposal and set out plans to instead only apply the new rules to policies sold after July 2009.

Both Which? and Aviva policyholder advocate Clare Spottiswoode have been calling for a stop to this practice though they were calling for this to apply retrospectively rather than in the future.

Which? says there are now very few with-profits policies sold each year so the FSA’s proposals will have an extremely limited impact.

FSA director of retail policy and conduct risk Dan Waters says: “It is essential that with-profits policyholders are treated fairly.

“The changes we are confirming today are an important development in this regard, which seek to ensure that policyholders do not pay for costs resulting from management failings.

“In future, the liability for compensation and redress payments will rightly fall to shareholders as the owners of life companies.”

Which? chief executive, Peter Vicary-Smith, says: “This is an unbelievable betrayal of consumers who are taking hits from all sides. It appears the FSA is allowing the financial services industry to dictate policy once again.

“In the current environment it seems ludicrous that firms can raid with-profit funds to pay for their own regulatory failings. The FSA must stand up to this industry.”

An ABI spokesperson says: “The new rules are a considerable improvement on the FSA’s initial proposals. However, we continue to be concerned about the possible impact of these proposals for the relationship between shareholders and policyholders and we will keep a watching brief on this.”


Recommended

3

Tories must offer greater RDR clarity

The Conservative Party’s radical plans to scrap the FSA, pass prudential regulation to the Bank of England and set up a Consumer Protection Agency leave more than a few question marks surrounding the retail distribution review.

Guarantees in the retirement income market

Lorna Blyth, Royal London  Do guarantees benefit customers and, if so, when? To answer this conundrum we commissioned Millimans, a global actuarial consulting firm, to conduct an independent review of the UK retirement income market and whether guarantees really do offer customers better value for money. The brief The study was one of the most comprehensive undertaken […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. Julian Stevens 24th July 2009 at 4:31 pm

    FSA confirms future ban on using inherited estate for misselling claims
    How many years ago was this issue first raised? Such a ruling is naturally to be welcomed, but the time it’s taken the FSA to get round to it is rather less inspiring. Is the FSA capable of acting quickly on anything whatsever?

  2. TCF?
    A firm that raids its customers’ funds to pay redress for the consequences of its own incompetence is hardly treating them fairly. It is a commercial risk that the owners of a business should accept.
    We would not tolerate being stopped on the way out of the supermarket and having a slice of bread taken from us to compensate somebody else who had been sold a mouldy loaf.
    I wonder how much compensation IFAs have had to pay simply because their clients’ funds were raided by life offices to pay redress that should have come out of shareholder funds.

Leave a comment