Chairman of the Treasury select committee John McFall has lashed out at life offices over their failure to accept responsibility for misselling endowments.
Speaking to Money Marketing, McFall says he wants to see the big UK life and pension providers made more accountable for their actions over misselling and the increasing problem of mistrust in the financial services sector.
After a blistering attack at the committee's meeting last week, McFall demanded that the chairmen of the companies' remuneration committees should either be hauled up in front of MPs or give written evidence to the committee about the processes they use to decide on salaries and bonuses.
McFall says the industry has been “going downhill faster than a slalom skier” and believes that these bonuses are so out of line that to some extent they need to be justified to policyholders.
He says he is standing up in defence of the consumer who continues to come bottom of the pile in the distribution chain.
He says: “The providers have to recognise they have a duty of care to their customers. I believe this is a sales commission phenomenon. There is a real need for them to change. There has been far too much emphasis on sales.”
McFall says he wants to see products simplified, adding that new products are going to have to stand up to more scrutiny and be more transparent.
“I would not come out and say that I do not want to see a commission system but I do not want to see sales regulated in the same way as it has been. We are in the very early days yet but the committee will eventually make recommendations on this,” he says.
On life executives' reticence to co-operate with the committee by providing their most up-to-date fig-ures on the scale of endowment shortfalls ahead of the meeting, McFall says: “The committee made it clear to them that they would need to offer all the information on predicted shortfalls to the meeting.”
The insurers reluctantly admitted the average shortfalls that their endowment customers are facing – Aviva £5,650, L&G £6,700, Standard Life £4,900, Royal & Sun Alliance £7,000 and Prudential £3,400.
Shrugs of miscomprehension from the Standard Life team followed McFall's questioning over why the life office had not submitted its average shortfall figures prior to the evidence session. McFall says he now intends to press all five of the companies for an accurate breakdown of the average numbers of red, amber and green letters they have sent out.
McFall does not seem surprised by the £50bn figure finally extracted from the panel for the predicted total endowment shortfall over the next five to 10 years.
This is higher than the FSA estimate of £30bn but less than half of ind-ependent insurance analyst Ned Cazalet's figure of £100bn.
But McFall says: “I think it is too early to make a judgement on whether this will be accurate. But the £50bn that R&SI group chief executive Andy Haste offered sounds a reasonable estimate.”
Nor would any of the life office heads promise to include a copy of the leaflet from the FSA which informs policyholders how to complain if they feel they may have a case for compensation. Not one of the life companies offered to inc-lude the leaflet recommended by the Financial Services Consumers Panel.
McFall sees this as typical of provider attitudes to problems such as endowments. He believes insurance companies will continue to do the minimum required and wait for the regulator to force them to take further action.
Another key feature of the meeting was a series of questions relating to the role that actuaries play in advising board members at life offices This placed the spotlight firmly on Legal & General chief executive David Prosser following alleg-ations that the directors knew about misselling as far back as 1998.
McFall says the comm-ittee will be looking closely at the role of appointed actuaries in this context as part of its review of the life offices' responsibility for misselling.
He admits that his parting shot – asking life company executives if they still deny that the industry has a huge reputation problem – may well have fallen on deaf ears, conceding: “I think there is still a very clear reluctance there.”