FSA changes to reattribution rules could cost insurers millions
Wednesday, April 9th, 2008The Financial Services Authority (FSA) has published proposals that could mean insurance companies will no longer be able to use surpluses from their with-profits funds to compensate customers who have been mis-sold policies.
The mis-selling of endowment mortgage policies over several years left insurers with huge compensation bills, many of which have been settled using money remaining after policies have been paid-out, plus the investment returns on the retained funds.
Under existing FSA regulations, compensation and other business costs can be met from the so called orphan funds, which are eventually reattributed to policyholders and shareholders, normally at a ratio of 90-10 (policyholders to shareholders).
However, the FSA rules have been heavily criticised in recent months, particularly in the case of Aviva’s proposals for the reattribution of Norwich Union’s £2.6 billion estate.
Clare Spottiswoode, the policyholder advocate in this case, has described Aviva’s proposals and the FSA regulations as unfair to policyholders.
Consumer group Which? has also been campaigning vigorously for a better reattribution deal for policyholders and its chief executive, Peter Vicary-Smith, has described the FSA’s consultation as a victory for consumers.