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Category — Insurance Industry

Great news on Chancellor banning cold calling and protecting pensions better

19 November 2016

  • Treasury set to ban pension cold calling in Autumn Statement
  • Well done Philip Hammond – this is a great start to help clamp down on scams
  • Clear signal for people that such calls are illegal so they should Just Hang Up or delete email
  • Further measures to stop scam schemes setting up and clamp down on transfers also welcome
  • We must do all we can to protect people’s precious pension savings and this is a positive step


The Chancellor is going to announce that pension cold calling is to be made illegal.  He may also be announcing additional measures to help protect customers, by making it harder to set up scam schemes and to transfer money into them.

Well done Philip Hammond – we have to do whatever we can to protect the public against fraudsters.  Vulnerable elderly people are being called and offered free ‘pension reviews’ which lead to them losing their entire life savings.  We need to be able to give the clear message that if someone contacts you out of the blue about your pension, they are breaking the law, they are criminals.  By making cold calling illegal, it is much clearer for the public that they just should not engage with such people.

So far, the government has tried a number of initiatives, such as Project Bloom, Project Scorpion, Action Fraud and cross-Departmental taskforces that aimed to warn the public and catch the fraudsters.  Unfortunately, the Government admitted in response to Written Parliamentary Questions that nobody has been convicted and only a handful have even been charged.  The current indirect approaches are very well-meaning, but just don’t work for the people who need protecting.

A ban on cold calling is obviously not going to stop all scams, but it gives people a fighting chance of recognising the dangers before they engage and also ensures that we can give the public the clear message that such approaches are dangerous and should be avoided at all costs.

Ideally we would want to find ways to stop pension firms transferring people’s pensions into scam schemes, however that is far more difficult.  A ban on cold-calling is something that can be done more quickly.

I worked hard as Minister to try to achieve this and am delighted to see it looks as if this will finally happen.  Officials and other Ministers tried to caution against banning cold calls because they did not want to stop bona fide businesses being able to contact customers.  That argument is false.  No bona fide company should contact people out of the blue offering free pension reviews or investment schemes for their pension savings.  If a firm wants to generate new customers, they will have to find better ways than just buying up lists of contact details and cold calling people.

A number of advisers have set up a petition which has helped to focus attention on this issue and the media has been great in supporting the ban on cold-calling.

A victory for common sense and for customer protection. Well done to all.

November 19, 2016   1 Comment

FCA study of annuity selling highlights worrying failings

14 October, 2016

FCA finds clear evidence of annuity mis-selling to customers in poor health but process of investigation and redress is painfully slow

  • Seriously ill customers short-changed for the rest of their shortened life – need swift action
  • Tens of thousands in line for redress
  • At least one in three firms have failed customers and will have to compensate
  • FCA findings welcome but customers need urgent action not still more reviews

FCA findings from its investigation of whether annuity customers in poor health were treated fairly: The FCA has just released its findings following an investigation into how annuities have been sold. Link here . The results are further proof that the annuity selling process has failed customers.

Customers in poor health have been short-changed on their pension income for the rest of their shortened lives: In 2008, the FSA first reported that annuity companies were not treating customers in poor health fairly. Since then, companies were supposed to change their practices to ensure they treated customers fairly, but here we are, eight years on, and not enough has been done.

At least one in three annuity companies has been found guilty of serious failings: Seven firms were investigated and a ‘small number’ were found to have seriously failed customers and will be required to pay redress. If this ‘small number’ is two firms that still represents 30% of the firms. If it is three firms, that represents over 40% of the sample.

FCA is only just starting to look at others, but still not the whole market: On the basis of its findings so far, the FCA is now going to investigate some of the other providers. Of course it is good that this issue is receiving more attention, but we are already another two years on and it will still not be looking at all of them. Many of the smallest companies may have had the worst practices, yet their customers are not being helped at all. The FCA’s Report today will still not help all the customers who were sold inappropriate annuities in past years.

Study found ‘relatively high incidence’ of failure of process and breach of FCA rules: It is worrying that the FCA study found that most of the firms were not selling annuities properly. Such failures are of concern, even if the FCA concludes that people may not have suffered losses in the majority of cases. Given the huge numbers of people involved, even a small proportion of customers is a large number of people.

Tens of thousands already in line for redress but may be many more to come: The FCA indicates that its findings could mean at least 90,000 people will need compensation for wrongly sold annuities, but it is still investigating more firms and there is bound to be more redress due. This is taking many years. Urgent action is so important because the annuity market since 2008 has covered over three million people. Many of those worst impacted by any failure were in poor health and will have been living on much lower incomes than they are entitled to, some may have already died. At the moment, these annuities are completely irreversible so customers will be poorer for life if they receive no redress.

There were no proper suitability checks or requirements to ask about health: The way annuities have been sold, without any suitability or ‘know-your-customer’ checks, makes it inevitable that many people will not have had the chance to make best use of their hard-earned pension savings. Companies were not required to ask customers about their health. They did not have to tell customers that a standard annuity assumes they are in excellent health and will live longer than average. So customers often had no idea that if they had past health issues, such as heart trouble, high blood pressure and so on, they could have obtained higher income by buying a different type of annuity.

Just sending a leaflet is not enough to address customer detriment on annuities: The FCA only requires firms to send written communications i.e. an official leaflet that describes the different types of annuities, or something equivalent. But most people do not know anything about annuities. Most customers, who will only ever buy an annuity once in their life, have no idea what the words ‘enhanced’ or ‘impaired life’ annuities mean for them. The asymmetry of knowledge and power works against customer interests in this market more than most others.

Frustrating that it is taking so long for redress for those affected: It is very sad to see that so many years have already passed and redress is only just now being considered. And this will not apply to all customers, with other firms only just starting to be investigated. I would like to see much quicker action, given the importance of annuity income to pensioners in poor health

FCA must monitor how second line of defence is working for annuities sold since 2015: The requirement for most people to buy annuities was thankfully abolished in the 2014 Budget, but many people are still buying an annuity to secure a lifetime guaranteed income. The Government promised there would be better checks to protect annuity customers, and the FCA needs to investigate how this so-called ‘second line of defence’ is working in practice. The proportion of customers buying from their existing provider has been rising and that suggests there may still be a need to improve selling processes. In particular, the FCA needs to ensure customers who are not in excellent health do not just buy a standard annuity. Greater use of PensionWise free guidance would help give customers a better chance to buy the right product.

October 14, 2016   No Comments

What’s wrong with UK insurance industry


28 March 2014

  • Insurance industry under fire – what’s gone wrong?
  • Insurers failed to realise who their customers were – relied on inertia
  • Flawed profit models rewarded intermediaries then recouped costs from end-customers
  • Now is the time for change – modernised, flexible products and services

UK insurers have been under fire in the past few days and many must be reeling from the shock of it all.  Suddenly the landscape seems to have changed.  As an observer who has for so long campaigned on behalf of customers, it is quite astonishing to witness such regulatory action.  Of course the insurance industry is systemically important, so we do need to be careful to act in a considered manner, but there are significant issues which need to be addressed.  The hitherto captive annuity market was a classic example of how insurers fail to recognise the needs of their customers and have stayed stuck in the past when it comes to product design and customer service.

What has gone wrong in the UK insurance sector?

Failure to understand end-customers and flawed profit models:  It seems to me there are two fundamental issues.  Firstly, insurance companies have failed to recognise who their customers are and secondly, their profit models are flawed as they rely on consumer inertia and high initial selling costs being recouped over many years with often unfair charges. 

Insurance is traditionally ‘sold’ not ‘bought’ so companies considered intermediaries as their customers:  The standard mantra is that UK financial products are ‘sold’, not ‘bought’.  Whether it was ‘the man from the Pru’ or the commission-driven salesmen, insurance companies considered the intermediaries who actually brought in the funds to their products as the customers.  Salesmen, financial advisers and even employers were the ‘gatekeepers’ who collected and directed the money, so products were designed to be attractive to them.  The insurance sales force was handsomely rewarded, while the end-customer was all-too-often forgotten.

Flawed profit model relied on high initial sales commissions and customer inertia to recoup costs: The long-term savings profit model of the insurance sector was based on paying huge up-front fees to salesmen and then recouping those outlays over many years from the unsuspecting end-customer who had trusted others to look after their money.  Exit penalties were often levied because the initial commissions paid to sales staff would not be recouped if customers did not keep paying fees for many years.

Commission bias led to successive mis-selling scandals:  Commission-based sales have already spawned a succession of mis-selling scandals in the pensions and bancassurance industry, with perhaps more yet to come.  Designing products with an intermediary’s interests in mind is hardly likely to result in an industry that understands the end-user and treating customers fairly is quite a challenge if you do not know who your customer actually is.

RDR did not stop commission bias:  RDR has ended commission-driven ‘independent’ advice, but the insurance industry continues to by-pass advisers and pay commission to others who can sell their products without any advice or quality checks.  Whether it is workplace auto-enrolment schemes that force workers to pay the costs of setting up their employer’s scheme through ‘adviser charges’, or annuity sales where ‘non-advice’ brokers were rewarded with handsome commissions or tied deals to sell potentially unsuitable annuities to pensioners, the commission model has been kept in place, to the detriment of end-customers in too many cases. 

The annuity market is a classic example:  Even the most basic of concern for end-customers would have required at least cursory suitability checks, including health and marital status, before selling a standard annuity.  Yet, the insurance industry has fought for years to protect its right to foist annuities on unsuspecting end-customers at continually worsening rates without any attempt to understand their needs.  Insurers even offered ‘brokers’ a significant percentage of customers’ pension savings just for making the sale – without worrying about whether it was an appropriate sale – even though this product is completely irreversible. This is all such a shame. 

Insurance the potential to deliver so much good to so many people:  The insurance industry can provide vital products to enhance people_s lives, yet the ongoing exposure of poor practice has shattered trust in financial services.  Customers need protection against events they hope will not happen _ with insurance at fair price.  They also need savings for events they hope will happen, managed by experts who are on their side and can offer them honesty, transparency and risk control.

Too often, insurers rely on customer inertia and take advantage of people’s trust with loyalty penalties:  Insurance is meant to offer both protection and future growth at a reasonable price, yet all too often its product pricing relies on customer inertia to recoup costs from captive customers.  Even on basic house insurance, let alone complex financial products, the best deals are reserved for new customers, while existing loyalty is penalised with higher premiums.  How many of us have called our insurer at renewal time to tell them we have a better quote elsewhere, only to be immediately offered a discount.  Does that not suggest the price was too high in the first place?  The industry does not reward loyalty, quite the reverse.  That is not a sustainable model for long-term success.

Some products offer expensive guarantees – cross subsidies within the business:  Some of the legacy products sold many years ago are actually very good value for customer.  They contain guarantees that have become extremely expensive to honour and there are many parts of the insurance company  business that must cross-subsidise losses elsewhere.  Guaranteed inflation-linked returns, guaranteed bonuses, guaranteed annuity rates are all likely to result in some losses which need to be offset by charging more in other parts of the product chain.  This leaves some customers out of pocket while also making it hard for insurers to treat all customers fairly.

Financial products are not just about money, they are about people: In order to serve customers properly insurers need to understand their lives.  They are not all the same.  They need flexibility and value for money.  That means fundamentally reappraising insurance company profit models, modernising operations and delivering more flexible products and services that individuals can relate to, without jargon and reams of confusing paperwork.

The annuity market is a good place to start:  As the FCA continues its investigation into the annuity market, this would be an excellent place to look for hidden charges that have caused consumer detriment and force the insurance industry to reappraise its profit models.  Nobody should be paid commission for selling an annuity and fees should only be paid to those who have made some checks on whether that product is suitable or not.  These problems are much more recent than policies from the 1970s.

Customers need new solutions and fair treatment:  As the traditional practices of hiding fees and charges are surely at risk of being choked off by regulatory challenge, I appeal to the insurance industry to recognise its customers’ interests.  The FCA is shining lights into the dark recesses of industry practice to force modernisation.  Customers need new solutions, on-line information, apps that engage them and far more flexibility.  I believe the insurance industry can – and will – rise to this challenge.



March 28, 2014   No Comments