What is one to make of Legal & General’s move to leave the Association of British Insurers? Let us politely ignore L&G’s stated reason, that its core business has moved away from areas where the company might need representation from an insurance trade body.
An alternative response might be to say L&G’s departure is typical of the idiosyncratic manner the company and its senior decision-makers have always operated in.
Some time in the mid-to-late 1990s, my business editor and I received a phone call from L&G – would we both like to come in and meet with David Prosser, the firm’s group chief executive?
Invitations like this are unusual – typically, an insurance company boss will sit down with a newspaper’s financial editor or equivalent. He may occasionally meet with the business editor but rarely both journalists at the same time.
So when we received Prosser’s invitation, we knew he wanted to discuss something important with us – and so it proved.
Back then, as many readers will recall, the financial services industry was mired in the long-running personal pension review.
Hundreds of thousands of occupational pension savers had been persuaded to opt out of their schemes and into personal ones instead.
In many cases, they had also transferred funds from their final salary schemes into the private money purchase arrangements.
Although the overall compensation bill was escalating rapidly and would eventually reach almost £12bn, the perception was that insurers were dragging their heels, to the increasing anger of a recently elected Labour government. It was at this point that Prosser summoned various journalists to a meeting.
He wanted to discuss a possible solution to the impasse of insurers being forced to review hundreds of thousands of cases within the increasingly demanding deadlines set by the regulators and politicians.
Prosser’s solution was impressively simple. Why not just offer a guarantee that any policyholder gets exactly the same annual income at retirement from their personal pension as they would have received from the occupational scheme they left, did not join or transferred their money from?
It was a neat solution, but would it have been the answer to the problem? In hindsight, I doubt it – Prosser’s proposal came at a time of continuously rising stockmarkets and decent annuity prices, certainly compared with today.
It is quite possible that 10 or 15 years down the line pension providers would have found it hard, if not impossible, to maintain their guarantees to policyholders and saddle themselves with a huge and continuous drain on their funds for several decades.
What is probably more important in the context of this discussion is that Prosser’s idea had not been discussed by the ABI, certainly not in an official capacity. I also rang several insurers that day and not one said they had heard of it.
Yet Prosser felt confident in completely by-passing the trade body his company was a member of – and on whose board he was later to sit for several years.
Another argument is desperate times call for desperate remedies. The scale of the crisis in relation to pensions was so severe that Prosser felt it necessary to float a potential solution via the media without taking it through the ABI’s labyrinthine internal decision-making structures. If the idea had gained traction, then bypassing them might have been worthwhile.
As it happened, the idea was stillborn. My boss wrote a vaguely approving article. I cannot remember whether any other newspaper did the same – the reaction was lukewarm at best. Within days no one was talking of it.
L&G’s solo bid to come up with an alternative to the pensions review back then may say something abut the company’s corporate culture. But it also reflects many of its members’ view of the ABI today, namely it is beginning to show ideological cracks that simply cannot be papered over.
The trade body has for years not really acted as anything more than a highly defensive organisation, defending existing practices and vested interests without being able to place itself at the centre of a debate about the real future of insurance in modern society.
The response, by a Government ABI members might expect to be their friend, has been to ignore or bypass the industry and sometimes to even damage its interests in a quite callous manner.
The failure of the industry – and the ABI – to come up with meaningful proposals on the running sore of the open market option,not to mention legacy pensions charges, was met by a Chancellor who simply blew up the annuity market.
No wonder then that some of its members are asking themselves what the point is of paying a small seven-figure sum to remain in a trade body which is increasingly pushed to the margin of any debate on the financial future of UK savers.
At a time when we are meant to be minding our pennies, it sounds like a pointless expense.
Nic Cicutti can be contacted via email@example.com