The Treasury has no business designing savings vehicles and no place in setting charge caps, says Scottish Widows chief executive Archie Kane.
Speaking to Money Marketing in his Edinburgh office last week, Kane said: “The Government and regulator have a role in creating a clear framework and clear standards in terms of how the industry should behave. If the Government steps further than that and ends up being involved in price control, that is an effective destroyer of competition. Once you start to set price controls, it basically kills competition in an industry.”
If there is a price cap, it would need to be much higher than 1 per cent. If it is not raised, Widows will seriously consider its presence in the marketplace.
Questioned on his views on local rival Standard Life, he says its push towards demutualisation will be a significant challenge for the company which will be likely to result in wholesale changes in its senior management. Kane is frank about Standard, predicting it will be a distracting time for the mutual over the next couple of years until the process is completed.
Speaking to Money Marketing in his Edinburgh office last week, Kane says despite the significant challenges Standard faces, it will still be among the industry heavy hitters in five years. He says: “Demutualisation is a significant task, it is very distracting to top management and involves a huge cultural change. As you move from a world of mutuality to a publicly owned company, that involves significant change in your behavioural style and in your executive population, which normally turns over quite a bit.
“I would not like to predict who the players will be in five years time but there will certainly be fewer of them. If I were to write down a list of five or six players I would probably get it right. Standard Life has to be seen as a serious contender for a slot on that list.”
In his first interview since his appointment as the successor to Mike Ross last October, Kane echoes and in fact takes further Standard's comments that with-profits will not be as important in the future. “With-profits is not a major part of our new business and it does not feature strongly in our plans. I would think the role of with-profits is a diminished one compared with what it was in the past.”
Since his arrival from parent company Lloyds TSB where he spent a decade, most recently as group executive director, IT & operations, Kane says he has been impressed with what he has discovered at Widows, both internally and in terms of its reputation among IFAs. “I have spent a lot of time with IFAs and I have been reassured by the standing of Scottish Widows within the IFA community. This is extremely important because distribution through IFAs is an absolutely key strategy for us.”
He is clearly determined to solidify Widows' relationship with IFAs, saying, alongside the bancassurance relationship it enjoys with parent Lloyds TSB, the independent sector is fundamental to its future plans.
But in a statement that perhaps accurately reflects the times, Kane says that Widows will focus its time and resources on the biggest IFAs while continuing to serve the market as a whole. “The IFA sector at large is important to us but we cannot be all things to all men. So it is important that we focus in on key IFA relationships, develop those relationships and put resources into those relationships. That is not to say that we would not seek to service the IFA sector at large but we can only develop our business through focus.”
Kane says depolarisation will be a challenging time for providers and IFAs and emphasises that Widows is determined to help IFAs in designing new business models to help them grow their businesses. “It is about sharing the pain so we can share the gain with them.I think there are some big challenges for IFAs and for manufacturers in making this transition. I definitely see us in this thing together.”
A significant part of that pain, Kane concedes, is IFAs' struggle to find professional indemnity insurance but he rules out Widows' involvement in footing their PI bills, saying the company “is not involved in the business of commercial insurance”.
The FSA, he says, is taking advantage of the crisis in the PI market as a means to accelerate IFA consolidation, an opinion which has long been voiced by many IFAs but rarely until this point publicly shared by product providers.
“The regulator is pushing IFAs towards consolidation through the regulatory burden on the sector and through things such as PI where the premiums have increased quite dramatically. I think we will see quite significant rationalisation in the IFA sector.”
Kane is generally supportive of regulation. He refers to it as the great uncertainty but also says the FSA is heading in the right direction and once the “dust cloud” has settled, the industry will be better off as a result. He says it is easy to be critical of the regulator but the industry must remember that it has had a relatively short lifespan and is still trying to find its feet.
He takes pride in Widows' financial strength, saying it is among the strongest companies in the industry. Having implemented the new realistic reporting requirements, Kane says it will not be until next year that a like-for-like comparison between insurers will be able to be drawn.
“It will only get truly clarified when we get into 2005. The FSA has nailed down all the different companies as to how they are doing their reporting and everyone is publishing the regulatory returns on a consistent basis. In that interim period, there is a period when people are interpreting the rules slightly differently.”
He says Widows' implementation has left it in a good position, having more than three times the risk capital margin.
Kane rejects recent claims by the Treasury select committee and the Consumers' Association, among others, that mortgage endowments have been widely missold. He believes the vast majority of consumers bought their endowments fully aware of the risks involved and should not now be claiming they were missold. He also points out that many endowments, although exactly how many is unknown, are no longer attached to the mortgages they were sold alongside.
Kane says despite this, the industry must constantly strive to earn the respect of consumers, not easy, given the turbulent history. “I think the industry will always have to earn the respect and trust of consumers. It will never be able to rest on its laurels, it will continually have to work to maintain that level of trust.”
Finally, Kane is keen to dispel the persistent rumours that Lloyds TSB is anything but completely devoted to Widows. He says he was brought in with the specific task of further developing the bancassurance relationship between the two and it is a job that he intends to fulfil.
“The very fact that I have come across along with another senior TSB executive is a demonstration of the intent to grow the Widows' business. I would not be in the role if there was any continuing speculation because quite frankly I would not have taken the job.”