Life offices have been strongly criticised in a new report by the Actuarial Working Party fo...
Life offices have been strongly criticised in a new report by the Actuarial Working Party for failing to improve the clarity of their with-profits policies an issue that may have prompted the endowment mis-selling scandal.
The Working Party has recommended that companies adopt a clearer approach to the management of their with-profits business, and explain to policyholders in greater detail the operation of each area of business and the cash flows associated with it.
The report also suggests that a yearly statement showing the investment return earned from the fund, the current mix of assets and the effect and size of any charges taken should be issued to the policyholder.
In a speech to the Institute of Welsh Affairs, Howard Davies, chairman of the Financial Services Authority (FSA), echoed these sentiments and warned that this lack of transparency was one of the reasons why the mis-selling of endowment policies had been allowed to occur.
He warned that the advent of stakeholder and the '1% world' may be a threat to the traditional with-profits policy unless it can evolve. Davies said: "We can see that according to estimates from the Council of Mortgage Lenders, the proportion of first time mortgages linked to an endowment product as the repayment vehicle have fallen from around a third only three years ago to less than 10% today."
The reaction from within the industry has been largely positive, with a number of life offices supporting the need for greater transparency, and the need for further explanations as to the types of profit that could be expected from an endowment policy. Scott White, group public affairs manager at Scottish Equitable, said: "The key with any investment is that consumers are aware of what they are getting. With-profits is getting better but there is sometimes some confusion as to what consumers are getting. The stronger companies are fully aware of the need for greater transparency and most have been moving this way for some time now."
The Consumers' Association issued a report at the beginning of February, which again warned that the potential risks of with-profits needed to be made clearer to policyholders. Commenting on the report, a spokesman at Standard Life said: "Standard Life supports the recommendations of the Consumers' Association's report into with-profit funds. While the report highlights a number of issues without recognising the distinct differences between mutual and proprietorial ownership, the broad thrust towards greater transparency and improved product qualities is one Standard Life welcomes."
