If you were to ask regular readers of Money Marketing to describe the underlying tone of this column in a single word, my best guess is the term most would use is “rant”.
“Rant” is defined in dictionaries as “to speak or shout at length in an angry, impassioned way”. So I can kind of understand why advisers feel I express myself that way, even if most of the time I try to use mockery rather than anger as a way of stimulating discussion.
Occasionally, anger does find expression in what I write – and nowhere is this more likely than in the case of closed-ended funds, which the FCA has finally published its report into.
The FCA’s report comes two years after the regulator mucked up by incorrectly briefing the Daily Telegraph that it was planning a wholesale investigation into more than 30 million life insurance policies sold from the 1970s to the end of the 1990s.
Instead of the 30 million figure, as MM makes clear in a searing analysis, investment-based life insurance products sold before 2000 by 11 providers with around £150bn in closed-book products across 9.4 million customers”.
The FCA found customers were repeatedly misinformed about the charges applied to their policies, or the literature they were sent actively tried to persuade them of the benefits of transferring out. In several cases, providers stopped sending out any statements to paid-up policyholders.
The financial consequences of such actions for consumers should not be underestimated. The FCA identified one policy worth £4,350 in 1992, where a customer stopped contributing and the annual management charge increased by 6 percentage points to a massive 7.25 per cent. By 2014 the policy was valued at £3,300 – which then dropped to just £1,500 when an exit fee was applied following a transfer the same year.
Incidentally, one possible answer to MM editor Natalie Holt’s point that “again and again, the FCA dances around the subject of whether there was intent to mislead on the part of the providers” is no insurer would be mad enough to allow, say, an email trail to exist, allowing the regulator to state unequivocally this was deliberately the case.
The regulator is painfully aware of the legal consequences of making allegations it cannot stand up in court. But any journalist who has followed this issue for many years cannot avoid calling it for what it is.
Let’s not forget the other element to this story. Back in March 2014, a hapless FCA director made a mistake in his briefing of the Telegraph.
Share prices in companies with high numbers of closed-book policies plummeted, before recovering after a day or so. The Association of British Insurers’ acted with amazing alacrity.
Within hours the trade body contacted the FCA urging them to clarify the scope of the review. Compare and contrast the swiftness of its response with the glacial pace at which the ABI has acted to actually end this scandal.
We are not talking two or three years either. Back in 1997, shortly after being appointed personal finance editor of the newspaper where I worked, I had the – admittedly rare – brainwave of commissioning former Office of Fair Trading director John Chapman to write a long report on pensions.
Chapman had previously written articles for a monthly trade magazine that were well-received but technically obscure. But his insight and knowledge shone through and he delivered a blockbuster for us, which we ran over four pages, with charts and additional analysis.
Re-reading his copy today, what stands out is Chapman’s total grasp on the myriad sneaky ways in which insurers were using every trick in the book to overcharge their policyholders.
I wrote on the subject in April 2012, when Thoresen made an empty promise to Money Marketing on the ABI’s behalf to remedy the situation.But actually, as Chapman’s articles showed almost 20 years ago, the scandal dates back at least that long, and probably a lot longer.
So why, if the evidence has always been so strong, has the ABI looked the other way for so long? The unavoidable conclusion is that the reason Thoresen and the ABI have refused to do anything is not insurmountable technical obstacles, or because the Department for Work and Pensions was refusing to give providers the power to bulk-transfer occupational scheme members to new and better plans.
My guess is over the past few years insurers have calculated the profits they could continue to make for a few more years from the excessive charges levied on millions of their policyholders. They have then compared these profits with the consequence of losing that money versus the fines that might be incurred from the regulator.
The industry’s cost-benefit analysis is that no matter what the long-term opprobrium, they stand to make more money by playing dumb and refusing to engage with any attempt to reform the system.
Given all this, could anyone really object if the response of any journalist of whatever stripe were to be anything other than complete fury at the way the insurance industry has ripped off millions of consumers?
Angry? You betcha.
Nic Cicutti can be contacted at firstname.lastname@example.org. Follow him on twitter @NicCicutti