Six life insurance companies, including savings giants Old Mutual, Prudential and Scottish Widows, could face disciplinary action from the City watchdog over their treatment of millions of customers in legacy policies.
The firms, which also include Abbey Life, Countrywide and Police Mutual, have been referred to the Financial Conduct Authority’s enforcement division following a review of ‘closed-book’ life policies.
‘Closed-book’ refers to any life insurance or savings polices sold by insurance companies that are no longer marketed. These legacy policies have been an area of concern for many years because of the lack of transparency over what happens to policyholders’ money and the charges they may pay.
In particular, the FCA was concerned at the prevalence of high exit charges and the ability of insurance companies to levy higher fees when policies go ‘paid up’ and no longer receive regular premiums.
The regulator’s review encompassed closed-book products of 9.4 million customers holding £153 billion, sold by 11 firms before 2000.
Tracey McDermott, acting chief executive of the FCA, said although most policies did not charge exit fees the regulator was concerned about the way some firms communicated with customers.
‘The practices at some firms appear to have been poor. We have particular concerns regarding how some firms communicated with their customers about exit and/or paid-up charges,’ she said.
‘We are now doing further work to understand the reasons for these practices, whether customers may have suffered detriment as a result and, if so, how widespread these issues are.’
Shares in Old Mutual, Prudential and Lloyds Banking Group, owner of Scottish Widows, were unaffected by the announcement as the regulator said it was not certain the investigation would end in disciplinary action.
This is in stark contrast to two years ago when the FCA botched the launch of the review and caused life insurers shares to crash. The ensuing outcry and investigation saw two senior executives leave the regulator and ultimately led to the chancellor George Osborne sacking the watchdog’s former chief executive Martin Wheatley.
Hugh Savill of the Association of British Insurers, said it would study the findings further: ‘It should be recognised that products analysed in the review bear little resemblance to the long-term savings market today, which continues to modernise and deliver value for money products with lower charges in the era of auto enrolment and pension freedoms.’