The Consumers' Association has warned that the Financial Services Authority's latest proposals on with-profits will do little to protect the 10 million with-profit policyholders who are saving for a pension, or paying off their mortgage with an endowment policy.
Today's proposals will not introduce real corporate governance oraccountability, and will not prevent directors being able to put shareholders interests before policyholders.
Unlike a unit trust where consumers' money is held separately in trust reducing the opportunity for abuse by directors, when consumers hand over money to a with-profits company the actual legal ownership then resides with the life insurance company putting them in a vulnerable position. Policyholders who are unhappy with the treatment they receive will then face huge penalties if they wish to surrender.
Despite the reforms, directors will still be able to set the rules and effectively judge themselves on how they treat and consumers. Consumers in turn will remain without meaningful legal or regulatory protection.
The reforms will not prevent previous examples of corporate abuse including: Axa type raids on orphan assets which costs policyholders hundreds of millions of pounds; ompanies using policyholder funds to pay compensation costs for corporate wrongdoing such as pensions mis-selling or endowment mis-selling; manipulation by directors of with-profits funds at the cost ofpolicyholders; distortion of competition, by the big with-profits using policyholders funds to cross subsidise land grabs for market share and to snuff out competition from better value providers.
Mick McAteer, senior policy adviser at the Consumers' Association, says: “Once again the FSA is making rather meaningless sweeping gestures on with-profits which will do little to protect policyholders and could even strengthen the position of directors.
“The FSA missed a golden opportunity to embark on a fundamental overhaul of this market that would have given legal protection for consumers and created new structures to ensure real corporate accountability for industry. Regrettably today's proposals are half-hearted measures relating mainly to transparency. More transparency will of course be welcome but alone it will offer little protection to the ten million consumers who are currently trapped in these funds”