Articles and Reports

Media release from the Office of the Policyholder advocate

13 December 2007

Spottiswoode disappointed at FSA clarification of inherited estate rules

The Financial Services Authority has today published a note clarifying its rules in respect of reattributions of inherited estates. Although the advent of the position of policyholder advocate and the establishment of the principle of Treating Customers Fairly is welcome, the note confirms that the position is largely the same as it was for the last reattribution, which was the AXA case of 2000 and whose outcome for policyholders resulted in widespread criticism.

Clare Spottiswoode, policyholder advocate in the proposed Norwich Union reattribution, today said:

‘This response is very disappointing in that it largely maintains the status quo which I believe unfairly favours shareholders over policyholders. I do not see how the approach is consistent with the 1995 Ministerial statement which the FSA supports. That statement clearly sets out that the proportions of policyholders’ and shareholders’ interest (that is, 90 per cent and 10 per cent respectively) in the surplus in an estate remain unaffected by whether or not the surplus is actually distributed. Policyholders have an expectation that the estates will be used for their benefit or distributed to them.

‘The plain fact is that every use of the estate that erodes the value of the estate reduces the opportunity for policyholders to benefit from special distributions.

‘The FSA allows the writing of subsidised new business with capital provided free of charge from the estate. This denies current policyholders benefits and passes them to future policyholders. I cannot see that this is fair.

‘Moreover, when a reattribution takes place the policyholder rights in the estate pass to shareholders, not to future policyholders. This means that money goes directly from current policyholders to shareholders and not to future policyholders. Again, I cannot see this is fair.

‘I have asked the FSA to confirm whether, in clarifying their rules, the consequences for current policyholders are appreciated and acceptable to them.

‘We should be quite clear that the amounts of money involved in the uses of the estate which the FSA is permitting, especially the capital subsidies for new business, are very significant.

‘My job is to represent the interests of policyholders and I will do all I can in the negotiations to achieve a fair incentive payment for them but the FSA’s ruling makes that more difficult.’

The FSA’s clarification came as a result of questions from the policyholder advocate to the FSA particularly in relation to the following uses of the inherited estate.

The FSA has confirmed that it will continue to allow these uses, but it is to open a consultation in 2008 over the charging of misselling costs to inherited estates.

Clare Spottiswoode is available for comment

 

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