Improve fund management, City told
The City watchdog has called on insurers to make sure they are treating their with-profits policyholders fairly.
The Financial Services Authority said work it has carried out has raised concerns that some firms are not doing enough to make sure there is independent input into the management of the funds to ensure policyholders’ interests are considered.
In a letter to chief executives of insurance companies, it added that some companies with closed with-profit funds are also failing to devote sufficient attention to managing the fund as policies gradually mature.
With-profits are long-term policies that aim to smooth out stock market volatility by holding back some returns in good years to pay out in bad ones. They are often taken out as a pension or endowment to pay off a mortgage.
Sarah Wilson, FSA sector leader for insurance, said: “Since the FSA’s introduction of new rules for with-profits funds in 2004/2005, we have been monitoring individual firms’ compliance with the rules.
“The mixed picture shown in the reviews of two key areas is of concern. Senior management need to review our findings against their approach to managing their firm’s with-profits funds and take prompt action to address any shortcomings.”
The FSA found that the arrangements some firms had for independent input did not take into account wider issues that could affect whether policyholders were being treated fairly.
It added that firms also needed to better identify and manage any conflicts of interest in the way they used independent reviewers to look at the way the funds were managed, with some independent reviewers also carrying out other work for the company.
The Financial Services Consumer Panel welcomed the letter but said the FSA needed to go further.
It said the regulator’s interpretation of the rules on independent representation were not strong enough, and there were other issues that needed to be addressed to ensure policyholders had fair access to and understanding of their with-profits funds.