FSB Reaction to Excessive Charges on Endowments

Last year, we published an article titled Charges in Respect of Investment Policies.

I referred the matter to the FSB for comment, particularly in view of the following opinions expressed by the Long-term Ombud:

The question does arise why anyone would purchase this policy. The converse question is why any insurer would develop and sell such a product as it does not seem to provide real value to policyholders.

This case study also demonstrates that disclosure by itself is not a panacea for all ills, particularly in an unsophisticated market. If a product is inherently flawed in its design can it ever be sufficient that the insurer has made the necessary disclosures?

Mr. Jonathan Dixon, Deputy Executive Officer: Insurance at the FSB responded as follows:

I saw the article, and share the concerns expressed in it.

This highlights the importance of the TCF initiative, which is an outcomes-based approach to fair treatment of customers. We have engaged a number of insurers on their products where there is a risk that these products do not deliver reasonable value for customers. We expect insurers to make their own changes in response to these concerns. Where this does not occur, and once the TCF principles have been encoded in legislation, we will take regulatory action where firms cannot demonstrate evidence of consistent delivery of value to customers. Product review will be part of this process, along with improved disclosure (in the form of Key Information Documents) and better oversight by product providers of their distribution channels.

I hope that is helpful in putting the FSB’s approach to these matters in context.

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