The FSA has proposed linking the definition of a Holloway product to four key criterion, to pave the way for certain plans gaining exemption from RDR adviser charging rules.
Holloway products, sold by around a dozen friendly societies to mainly less well-off consumers, combine income protection insurance and an investment element which allows policyholders to share in the society's surplus.
Currently the FSA defines a Holloway sickness policy as ‘a policy offered or effected by a friendly society under the Holloway system'.
However, it says this definition is too vague and wants to link the Holloway name to four key functions, so only qualifying products can use the label.
This will tie in with plans to exempt Holloway products with only a "small investment element" from the RDR commission-ban, after fierce lobbying from mutuals.
Final rules following that consultation have yet to be published, but an exempt policy would also need to fall within the four criterion published today.
Exempt products would be known as ‘Holloway exempt sickness policies' and would be defined as ‘a Holloway sickness policy with a projected maturity value of 20% or less of accumulated premiums'.
Under the proposals, Holloway products must provide permanent health benefits under a long-term insurance contract while policy premium amounts must include an element to provide for solvency, volatility of experience and for investment purposes.
Surpluses are apportioned to policyholders and vest in the policyholder at maturity, retirement, death, or as otherwise specified and are an amount which reflects the insurance margins and a percentage of the investment returns based on the amount of premium paid.
