The FSA found, in its review into the operation of with-profits funds, that a significant number of firms are not adequately demonstrating the practices it expects from a well-run with-profits business.
The review focused on whether firms were treating their with-profits policyholders fairly, looking specifically at how senior management in firms have implemented FSA rules.
The FSA flagged up ineffective governance of with-profit funds, especially in how independent challenge is provided by firms’ with-profits committees, which means that policyholders’ interests may not be properly protected as a major concern.
It also highlighted significant weaknesses in the quality of consumer literature, adding that it is not satisfied that all firms are doing enough to ensure that policyholders receive sufficiently comprehensive, timely and clear information to help them understand their policies.
The FSA says firms have been told to take action quickly to improve their operations with several being directed to make immediate changes to their governance arrangements to better protect policyholders’ interests.
The regulator says it will be monitoring firms’ responses closely and will consider disciplinary action if firms do not address the concerns.
FSA insurance sector director Ken Hogg says: “This review shows that, while there has been some progress, there is still more work to be done by firms in the with-profits sector to make sure that their policyholders are treated fairly. We expect all firms to raise their game in this area, not just the firms that we reviewed.
“Our focus on with-profits does not end with this review. Firms should make sure that their communications with policyholders are clear and manage expectations about the likely performance of their policy.
“They should also ensure that their with-profits committees are providing an independent challenge to their management. We will continue our intensive supervision of the with-profits sector and we expect firms to take action to address our concerns.”
Which? has slammed the report, claiming the FSA must name and shame the firms it has referred to enforcement.
Chief executive Peter Vicary-Smith says: “Despite reviews dating back as far as 2001, the FSA has continually failed to look out for the interests of with-profits policy holders. It effectively looked the other way when Prudential, AXA and then Aviva plundered the inherited estates of their with-profits funds and failed to act despite criticism from Which? and the Treasury select committee.
“The FSA must name the firms that it is referring to enforcement and set in place rules that will ensure fair treatment for with-profits policyholders.”