FSA expects firms to do more to treat consumers with life insurance products fairly

The Financial Services Authority (FSA) has today published an insurance sector briefing on thematic work which suggests that some advisers are not providing sufficient ongoing advice for with-profits policyholders. It also shows that after-sales communication documents for these and other life sector policyholders are of variable quality.

The findings suggest that some firms - product providers and advisers - are not currently treating their customers fairly.

Sarah Wilson, FSA Director and insurance sector leader, said:

"These findings are significant. Without ongoing advice, consumers might not be able to make properly informed decisions about their with-profits policy. They also might not understand the potential need to take action to meet any gap between their past and current expectations of investment returns. And poor after-sales information for these and other policy types makes it harder for consumers to understand the performance of their policies and the product features they have paid for.

"Senior management in both insurers and advisory firms need to re-examine their existing approach and, where necessary, implement changes. Advisers need to provide advice where they have created an expectation that they will do so. Insurers need to ensure that post-sale communication is clear, fair and not misleading. We will take appropriate supervisory or enforcement action in cases where we find that customers are not being treated fairly."

The key findings are:

• Although there are 32 million with-profits policies in force, many policyholders no longer have access to the adviser who sold the policy. For those policyholders that do have an adviser, an independent survey of IFAs conducted for the FSA found that many were reluctant to advise on existing with-profits policies.
• In the absence of advice, these and other policyholders rely on post-sale communications from the insurer. A review of a sample of insurer documentation found some good examples, but also some significant failings. The main ones were failure to mention and/or explain Market Value Reduction free-dates or Guaranteed Annuity Rates; use of complex terminology without explanation; and a failure to explain how the actions of an insurer may affect the policyholder.

The FSA expects the senior management of firms to review their current approach.

In its recent progress report on implementation of TCF, the FSA reported an increase in commitment by senior management to the principle of Treating Customers Fairly but warned firms who have failed to engage that they face tough action. To ensure rapid engagement, the FSA has also announced a new deadline for all firms to have completed their work on TCF and to be able to demonstrate that they are consistently treating their customers fairly by the end of December 2008.

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