The Financial Conduct Authority (FCA) will investigate three of the UK’s largest life companies over the way they charged exit fees to clients in life insurance products closed to new business.
It will investigate Old Mutual, Prudential and Scottish Widows following a thematic review on closed book customers in life insurance companies.
The review focussed on investment-based life insurance products sold before 2000, which are now closed to new customers. It reviewed how these companies treated so-called closed-book clients.
The FCA looked at eleven firms as part of its review. It found that six firms charged exit fees to clients in certain closed policies.
The regulator said the majority of policies in these firms did not charge exit fees. However, when charges were applied the regulator said its findings indicated ‘the six firms may have failed to inform customers of these charges at the time they were incurred.’
The regulator said its investigation team would look into the three companies after reviewing how life insurers treated long-standing customers.
The FCA will also investigate Police Mutual, Abbey Life and Countrywide over the way exit fees in these closed-book life insurance policies were disclosed.
The investigations will determine whether customers suffered any detriment as a result of practices within the firm.
However, the FCA said the investigations did not mean it had reached a conclusion that any of the six firms had breached regulatory requirements.
The FCA said these investigations could be expanded to other life insurance companies, depending on what the enforcement team finds.
The regulator will also work with firms to reach a ‘voluntary’ solution to cap exit charges.
Tracey McDermott, acting chief executive of the FCA, said the regulator was concerned about the way firms communicated exit charges to closed-book clients.
‘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.’