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Nuki&#39s Eye

There will be much wailing and gnashing of teeth going on in the boardrooms of insurers this week.

At the offices of the ABI, the slap-slapping of self-flagellation can be heard from the street. At Canary Wharf, where the life industry&#39s police force (aka the FSA) has its off-ices, “regulators” are cracking their heads off blooded walls in disbelief.

The cause of all this anguish is the sudden demise of the partial pledge or limited guarantee, one of the oldest and most exploited concepts in the barmy world of British financial services.

We are talking here of the insurance salesman&#39s habit of crossing his fingers behind his back when making a commitment. It is a tool so central to the operation of most life and pension operations that it is hard to imagine that many will survive without it.

Equitable Life, of course, will not be surviving. It is the company whose fantastic arrogance caused the practice to be put in front of the courts in the first place.

Last week it said to the Law Lords: “Look here, either you let us welsh on a clear promise we made in writing to 100,000 ordinary people who trusted us or we go out of business with massive ramifications for the rest of the industry.”

The Law Lords, who may have mistaken this as a form of blackmail rather than a legal argument, replied: “Fair&#39s fair. Pay up and go bust.”

It is the blunt simplicity of the Law Lords&#39 ruling that has so shocked the rest of the industry. The idea that the rights of consumers might be put ahead of the financial interests of big business simply did not occur to anyone at the ABI when it put Equitable up to fight the industry&#39s corner two years ago.

The idea that a promise might be held to be a promise when an estimated £9bn in corporate spondooliks was at stake was beyond them. The FSA will be equally shocked by the ruling as it too is a big advocate of compromise, fudge and equivocation in all matters of importance.

For example, now that polarisation has finally started to cause people to seek independent financial advice, the FSA has backed the idea of multi-ties. Who are the people most likely to benefit from this change in policy? Yes, you guessed it, the banks and big direct-sales companies whose products lurk in the bottom quartile of every accurate performance list.

Not content with buyingup the promise of future dir-ectorships with the bancassurers, however, the lads and lasses at the FSA are also reported to be conniving with the big life offices to swipe policyholders&#39 assets.

Apparently, Axa Equity & Law popped into Canary Wharf a few months back and explained that it had accumulated a cool £1bn in so-called orphan assets. Axa explained that, both technically and morally speaking, 90 per cent of this fortune belonged to its policyholders.

But would the FSA mind very much if the company&#39s shareholders just ignored that and pocketed 40 per cent of it?

If this sounds to you every bit as ludicrous as Equitable Life asking the Law Lords to dump on 100,000 innocent pensioners, you would not be wrong. However, in this case, we are talking about 750,000 people and it is the question being asked not in an open and independent court but in a back room belonging to the FSA.

No surprise then that the answer – if reports in this weekend&#39s papers are correct – was pro-industry.

“Of course you can reach into your policyholders&#39 wallets and swipe £20m that does not belong to you,” the FSA is reported to have told Axa. “Just make sure you dress it up to make it look as if you are doing them a favour.”

If the FSA does attempt to make multi-ties or a 60/40 split of orphan assets a reality, someone out there should challenge them in the courts. The Law Lords&#39 decision to give Equitable Life the finger last week clearly indicates that justice is ultimately on the side of the consumer.

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