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Turn back the hands of time

We have seen some truly stupid relaxations of standards in our industry over the past couple of decades, largely the result of pressure from the progressive lobby.

Now, so many problems have come home to roost, it is the same “progressive mentality” scraping away frantically at the bottom of the barrel to find somebody to blame.

The silly life offices, veteran sitting ducks all, dripping with the kind of abject guilt you can&#39t erase from your face when a Customs officer asks if you have anything to declare and you honestly haven&#39t, do little or nothing to defend themselves when the finger is pointed in their direction.

The rot set in with the removal of prohibition of indemnity commission. This had been barred by the old Life Offices Association, and for very sound reasons too.

The result is millions of pounds of undrawbackable, unearned commission sloshing around out there, all to the detriment of the policyholders and shareholders, much barely justifiable churning of clients&#39 investments and an industry with more than its fair share of “undesirables”.

The legalisation of indemnity commission was, I seem to recall, at a sort of watershed. Out from behind their stuffily decent facades swarmed the banks and building societies, suddenly proselytized and crazed by the scent of quick mega-money, eager to flog life policies big-time.

Many checks and balances, particularly in connection with endowment mortgages, were dispensed with at about that time. Hitherto, lenders had not accepted any old endowments from any old life office. Special undertakings had to be entered into before an office would be included on a lender&#39s panel. The endowments were “specials” – tailored for the job. The office guaranteed that surrender values would be no less, at all times, than would put the assured in as good a position as would have been the case with a repayment mortgage.

The life office undertook to inform the lender – to whom the policy was formally assigned – if premiums fell into arrears. No cashing in the policy, as we see these days, to raise cash for air tickets to Benidorm. The non-forfeiture clause had to be deleted to prevent the policy cannibalising itself if premiums ceased mid-term. Even the monthly premiums had to be true, rather than instalments of the annual amount.

Then we had the politically correct clamour for the terminal bonus to be doled out long before the natural termination of a policy, causing life funds to miscarry after massive mid-term haemorrhaging. That must have had a tremendous adverse effect on maturity payouts.

We are now seeing the longest period of low interest rates in post-war history, which exacerbates the problem of low payouts, which is worsened further by the regulator&#39s arbitrary attitude towards performance projections.

If the life offices are to blame for any of these phenomena, it is because of their failure to stand up for time-tested principles and meekly caving in to “progressive” market forces and political correctness.

There are fewer more politically correct dinosaurs than the financial services regulators. When letters – sent under regulatory compulsion by life offices and intermediaries to policyholders – inviting policyholders to consider whether their policies were missold have failed to produce the eagerly anticipated screams of dissatisfaction, the exercise has been repeated again and again in the hope of better results. Meantime, we see more and more reasons invented to suggest the presence of some misdemeanour or other on the part of the adviser.

Some of the latest gems reported are first that the concern of the PIA that endowments are being sold to people with bad credit histories, second, ditto concern that 25-year endowments have been written for no other reason than that is the term of the loan, and it has got to stop, and third, that it is thought that Equitable Life distributed too much terminal bonus.

In response to which I say:

1: What can that, even in the far reaches of a vivid imagination, have to do with it?

2: Words fail me. If any other term had been selected, the cry for compensation would be deafening and the regulators would baying for somebody&#39s blood.

3: Maybe they did. And if they had not paid enough, they would have been slated for that instead – only sooner. The authorities, the appointed long-stop fielders, simply took their eyes off the Equitable ball, didn&#39t they? Such a tragic situation does not arise overnight. You are not the smug, non-commission paying, revered old-timer of life insurance one day and on skid row the next.

This last question is closely connected to the recent demand for life offices to disclose their with-profits investment performance. Another piece of hysterical PC foot-stamping.

The actuarial and investment skills required in running a with-profits fund are considerable. How much surplus to distribute, how much to put to reserve and when to dip into reserves are all a matter of fine timing. It cannot be in the best interests of fair competition that an office&#39s rivals should be privy to such planning. For 200 years, give or take, nobody has demanded to know what almost amounts to a confidential trade secret.

Call that patronising if you like but it is the end results which matter.

Simply, it has dawned on somebody “up there” that one generation&#39s gain from the famous smoothing of with-profits is the next generation&#39s loss. Assets not distributed but put to reserve during the highly successful currency of policy A eventually accrue to the benefit of policy B, during the currency of which, times are hard.

You can almost hear the A minds working. “That&#39s not fair. Why should we subsidise anybody else? Get round the trough lads. Never mind that a decent average could be enjoyed by all. Grab what you can while the going&#39s good.”

It is the compensation-trained society in which we agonise and which brings food and drink to regulators of all kinds.

But what an unholy mess all this progressiveness has landed us in. How many more examples do we have to endure, of rules cooked up by some well-intentioned but half-baked egg-head, producing the diametrically opposed effect to that which was first intended?

A clock can be turned back, you know, if you do it carefully.

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